Stocks wrapped a volatile week with a solid rally that still left the major averages mostly lower for the week and possibly paved the way for a summer slowdown.
Banks unexpectedly led the Friday rally, while technology stocks also helped the market recover from a 251-point beating on Thursday, attributed largely to a trader revolt against the Federal Reserve failing to provide another round of quantitative easing stimulus.
"It reminded me of a 3-year-old screaming for candy," said Keith Springer, president of Springer Financial Advisory in Sacramento, Calif. "The market is addicted to stimulus. The economy's clearly slowing down because the last QE program is winding down and you can feel the effects are wearing off."
Thursday was the market's second drop in excess of 250 points this month and the second worst loss of the year.
The Dow and Standard & Poor's 500 both finished off mildly for the week while the Nasdaq rose a shade.
The week's action left some market participants concerned that stocks were likely to swish around until more visibility emerges about the future of the European debt crisis and the dangers of the fiscal cliffin Washington.
Traders had worried also about bank stocks heading into Friday, after Moody’s Investors Service downgraded the credit ratings of 15 of the world’s largest banks late on Thursday.
But those fears were turned on their head when financials rallied and actually led the market.
The relatively sanguine view of the bank downgrades was likely due to relief that they were less severe than expected, with many analysts anticipating that the biggest names would fall three notches when in fact most fell just two, with only one dropping three notches.
Most if not all the banks in question posted gains, led by Bank of America , which rose nearly 2 percent, and JPMorgan Chase , up more than 2 percent.
"In the grand scheme of things, the market being up 250, down 250, it's still trading the uncertainty," said Michael Cohn, chief market strategist at Atlantis Asset Management. "It's somewhere in the realm of cheap to fair value here."
All 10 sectors on the S&P 500 were positive Friday, with telecomms and financials at the front of the pack.
Some feared that the Moody's action would weigh not only on banks but on the markets in general.
"Moody’s has taken the unique step of downgrading a series of American banks when their performance ratios are improving," Rochdale Securities analyst Dick Bove said in a research note. "Most important is the fact that in the past 11 quarters, bank earnings have been up year-over-year. There is no logic to what this company has done."
Utilities and industrials lagged the market.
Curiously, transportation stocks were not confirming the relief rally, with the Dow Transports index off 1.3 percent.
Traders also attributed the bounce to news from the European Central Bank, which relaxed its lending rules, specifically in terms of what it would accept as collateral.
General Electric and Merck led Dow gainers, with Wal-Mart and Caterpillar the only two of the 30 components in red numbers.
In Europe, equity markets fell as stocks looked set to round off another bad week on Friday with little for investors to rally behind.
There were no major U.S. economic reports released.
In corporate news:
Darden Restaurants said sales have been falling at its flagship Red Lobster and Olive Garden outlets, dropping more than 7 percent in May alone.
Ryder cut its quarterly earnings forecast in response to falling demand for commercial rental services. The truck leasing company said it would cut costs and cut its rental fleet on expectations that weakness will continue throughout the year.
Monster Beverage will replace Sara Lee in the S&P 500 index after the close of trading on June 28. Sara Lee will spin off its international coffee and tea business and change its name to Hillshire Brands. Hillshire stock will move to the S&P MidCap 400.
Johnson & Johnson’s blood clot drug Xarelto has been rejected by the Food and Drugs Administration for wider use. J&J had applied for approval to use Xarelto to reduce risk of heart attacks and strokes in patients with acute coronary syndrome.
Wynn Resorts has won a court decision that takes its legal battle with Japanese billionaire Kazuo Okada back to Nevada state court.
The court had originally blocked Okada’s attempts to access Wynn’s financial records in the ongoing battle between the two sides.
Across other markets, commodities traded slightly higher, with the Reuters/Jefferies CRB Index up 0.3 percent. Oil, particularly Brent crude, posted gains, while metals were mixed as gold edged higher and silver continued its plunge. Grains were largely higher.
The U.S. dollar edged lower against the euro .
In fixed income, demand waned for safe-haven Treasurys, with the yield on the 10-year benchmark note rising to 1.67 percent, up from 1.63 percent in Thursday's session.