Investors hit the brakes Friday, but it wasn't the 25-car pileup many had expected amid hope that a bailout bill will get passed by Congress.
The Dow Jones Industrial Average tumbled about 130 points at the opening bell then cut its loss to only about 20 points after President Bush and congressional leaders offered words of encouragement that this deal will get done. Heading toward the lunch hour, the Dow was down about 50 points.
The S&P 500 and Nasdaq were off about 1 percent as worries about Research In Motion's outlook spooked tech investors.
"The legislative process is sometimes not very pretty," Bush said. "But we will rise to the occasion. We are going to get a package passed."
"We're going to get this done — and stay in session long enough to get it done," Senate Majority Leader Harry Reid said.
"The time is now for House Republicans to come to the negotiating table and for presidential politics to leave the negotiating table," Reid said. "The insertion of presidential politics has not been helpful ... It's been harmful," referring to criticism of GOP presidential candidate John McCain that he rushed in to the negotiations only to slow down the process.
The McCain camp announced Friday that he will attend the debate tonight against Democratic nominee Barack Obama.
Bailout talks ended without a deal Thursday night but lawmakers remained under pressure to get a deal done. Congressional leaders will go back to the table today to try and hammer out the deal.
"I actually think [Congress is] working quite quickly," said Jim Rosenthal, managing director of institutional trading at Ladenburg Thalmann. "The legislative branch of this country does not work in 48 hours ... We're just not used to watching the process," he said. "Legislation usually takes six months and a lot of bickering and fighting."
Still, he remained confident: "Congress will get a deal passed," Rosenthal said.
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If the proposed figure of $700 billion was made available it would exceed the total lending by the International Monetary Fund since its inception, according to Reuters, but some analysts say that it still wouldn't be sufficient to unclog the financial arteries.
Bank stocks took a hit after the credit crunch claimed its biggest victim: Washington Mutual . The U.S. shut down the nation's largest savings and loan late Thursday, wiping out its stock. JPMorgan Chase jumped in to snap up the assets and deposits of WaMu for $1.9 billion.
That left investors wondering who might be next.
"You're talking about the largest failure in banking history, so there is going to be a negative reaction, right?," William Smith, president of Smith Asset Management, told Reuters. "What you're going to see is the strong stronger, and the weak are going to die off."
Among bank stocks: Wachovia and Ohio-based National City were the biggest decliners.
Research In Motion tumbled 25 percent in what one analyst described as a "slaughtering" of the stock. The company turned in strong second-quarter results but investors are worried that the company is spending too much money on new products and marketing heading into a global economic slowdown.
"We believe the company is making a bet on market share at the expense of gross margin. We understand the bet and think it is a smart move," TD Newcrest analyst Chris Umiastowski wrote in a note to clients. "But overall, the Street tends to be short-sighted, and this explains the slaughtering of the stock."
The stock's plunge may have seemed scary, particularly as we watch banks go down like pins at a bowling alley. But some analysts saw it as a positive.
"[W]e believe this pullback is an excellent entry point into a tremendous growth stock, with the multiple at a multiyear low,"JPMorgan analyst Paul Coster said in a note.
Shares of rival Apple skidded more than 4 percent.
In economic news, the final reading on second-quarter GDP showed the economy grew at a 2.8 percent pace, lower than the prior estimate of 3.3 percent but higher than the 0.9 percent rate in the first quarter. Corporate profits were also revised lower, showing a 0.4 percent decline, compared with the prior estimate of 1-percent growth, though that was better than the 7.7-percent drop recorded in the first quarter.
Since it's the final reading, on the second quarter, which was forever ago, it wasn't expected to have much impact on the market. However, growth has been slowing in the current third quarter, which ends at the end of September. We'll get the first reading on the third quarter in a month.
Meanwhile, consumer sentiment hit a seven-month highin September but increasing worries about the crisis in the financial system clouded the outlook.
NEXT WEEK:
MONDAY: Personal income, spending; Fed's Hoenig speaks; earnings from Circuit City, Walgreens
TUESDAY: Case-Shiller home-price index; Chicago PMI; consumer confidence; Fed's Lockhart speaks
WEDNESDAY: Auto sales; weekly mortgage applications; ADP employment report; ISM manufacturing index; construction spending; weekly crude inventories
THURSDAY: ECB annoucnement; jobless claims; factory orders; natural-gas inventories; Fed's Bullard speaks; earnings from Constellation Brands
FRIDAY: August jobs report; ISM services index; earnings from Family Dollar
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