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Stocks slumped to a 2.7% loss on Friday. Tenuous fiscal and financial conditions in Europe continue to be blamed.
Weakness among Europe's major bourses weighed on sentiment even before U.S. markets opened on Friday. In turn, stocks slid at the start of the session, extending the prior session's slide.
From the start, selling interest was broad based. Pressure intensified in response to headlines that suggested Germany is planning to support certain banks if Greece defaults on its debt. The headline was circulated before trade in Europe closed; it led Germany's DAX to drop to a 4% loss. The euro also sold off in response to the headline. It sank to a 1.6% loss, as of the closing bell.
Weakness in the euro fueled increased demand for the dollar, such that the Dollar Index rallied 1.2% to a five-month high above its 200-day average.
Skittishness among investors stoked volatility, such that the Volatility Index, often euphemistically labeled the Fear Gauge, climbed more than 16% back toward 40. The VIX hasn't been that high since concerns about Europe's stability had last escalated in mid-August.
In response to broad market weakness and heightened volatility, Treasuries scored strong gains. In fact, buyers drove the yield on the benchmark 10-year Note to a new record low near 1.90% after it had been near 2.30% only a couple of weeks ago.
Friday's drop left the S&P 500 to log its fifth loss in six sessions. It also caused the stock market settle the holiday-shortened week 1.7% lower than where it began, giving stocks their sixth weekly decline in seven weeks. The downtrend has left the S&P 500 almost 16% below its 2011 high, but more than 4% above its 2011 low.
Friday's drop made for a discouraging follow-up to the 1% loss logged in the prior session. Stocks were pressured on Thursday in response to a lack of leadership, another weekly initial jobless claims tally above 400,000, and the failure of European Central Bank President Trichet to offer up any kind of plans intended to stimulate growth in the region, despite a downward revision to his GDP forecast for the region.
Stocks scored their only gains of the week on Wednesday, when market participants applauded news that a German court rejected a lawsuit intended to prevent the country from participating in bailouts for the European Union.
The observance of Labor Day kept U.S. markets closed on Monday, but rather than a rested return to the markets on Tuesday, traders were anxious sell. Soured sentiment in Europe underpinned the action. A better-than-expected August ISM Service Index of 53.3 mattered little to market participants.
| Index | Started Week | Ended Week | Change | % Change | YTD % |
| DJIA | 11240.26 | 10992.13 | -248.13 | -2.2 | -5.1 |
| Nasdaq | 2480.33 | 2467.99 | -12.34 | -0.5 | -7.0 |
| S&P 500 | 1173.97 | 1154.23 | -19.74 | -1.7 | -8.2 |
| Russell 2000 | 683.36 | 673.96 | -9.40 | -1.4 | -14.0 |
