Stocks were mixed Friday as a second straight drop in nonfarm payrolls and hopes that the worst is over tugged the market in both directions.
The Dow Jones Industrial Average, S&P 500 index, and Nasdaq were all lower at midday, though financials and techs held onto gains.
Stocks had a rollercoaster morning, tumbling after the jobs report, then quickly rebounding before turning mixed.
So, why did the rally fade so quickly?
"Fast money traders came in and aggressively bought financials at the open, then took profits a half hour later," CNBC's Bob Pisani explained. There was also some short-covering in the sector. "Now we need real money to sustain the move off the lows," Pisani said, "and that's where we will likely have a problem ... Right now, we are in a 'sell on the rally' phase."
The concern now is that the market will idle for the rest of the day as "the fast money has already made money and may just sit on the sidelines," Pisani said. (Read Pisani's "Trader Talk" Blog.)
Some analysts said the market has already priced in the worst of the downturn, which helped spur the short-lived rally.
The market "is a forward-looking animal," said Jim Paulsen, chief investment strategist at Wells Capital Management in Minneapolis. "This market was struggling for the last six to seven months when the economic data was good ... it was correctly telling you what we got today in the data," he said. Now, the market is "already looking ahead to what the economy is going to be doing in late May or June."
"You've got the Fed ... lowering rates, stimulating lending," Scott Fortune, an analyst with Magee Thomson Investment Parters, told CNBC. The market has been "overly pessimistic" about earnings, and now, he sees the possibility for a stronger second half with mid-single-digit earnings growth in percentage terms for most companies.
"Looking out, it's more positive," Fortune said. "The market is reflecting that."
Nonfarm payrolls declined by 63,000 jobslast month -- economists had forecast a flat to slightly higher reading. It was the biggest decline since March 2003. Revisions showed the January decline was steeper than previously thought and the December gain was cut in half to 41,000.
The unemployment rate slipped one-tenth of a percentage point to 4.8 percent. Economists said the discrepancy -- a drop in payrolls and the unemployment rate -- reflects the fact that job seekers are increasingly discouraged and dropping out of the labor market.
Just before the employment report, the Federal Reserve announced measures to ease liquidity pressures, including raising the amount of money it will auction to banks this month to $100 billion. Fed officials said they are in close consultation with foreign central bank counterparts to address liquidity issues.
The move "was an attempt by the Federal Reserve to start showing some leadership" and to be creative, Jack Bouroudjian, a trader with Brewer Investment Group, told CNBC.
"If they can do something with the banks overseas, that will be the catalyst that gives a bottom not only in the dollar but also in the market," he said. "Until then, if you're an investor, you have to let the market come to you. Look for those multinationals... it's going to be very difficult to make money in this environment."
The Fed move gave beaten-down financials a boost, with the S&P 500 financial index, the best performer among 10 key S&P sector indexes, up 1.2 percent.
J.P. Morgan and AIG gained more than 2 percent, making them some of the top gainers on the Dow.
Washington Mutual and other lenders have apparently been approaching private-equity foirms and sovereign-wealth funds to discuss cash infusions, the Wall Street Journal reported, citing people familiar with the situation.
Bond insurer Ambac Financial Group said it sold $1.5 billion of shares and convertibles, protecting the company from ratings cuts.
Citigroup said it aims to cut its home loan exposure by $45 billion, reduce risk and save $200 million a year in an overhaul of its U.S. residential mortgage business.
Semiconductors rallied amid some encouraging earnings from the sector after the closing bell Thursday.
The Philadelphia Stock Exchange semiconductor index was up 1.5 percent. Intel joined J.P. Morgan and AIG to round out the top three gainers on the Dow.
Analog chip maker National Semiconductor reported results on target, while communications-equipment maker Ciena said its fiscal-first-quarter profit jumped and forecast a 27 percent increase in full-year revenue.
On the downside in techs, diversified-chip maker Marvell reported it swung to a profit in its fiscal fourth quarter but its revenue guidance disappointed investors.