The main American stock indexes finished the week down less than 2 percent after a second consecutive day of gains on Friday. Although there was a sense of relief that the economy had not fallen off a cliff — the Standard Poor’s 500-stock index started the week plunging nearly 6.7 percent — there was little to celebrate as new data showed consumer sentiment had sunk below levels seen during the financial crisis three years ago.
The week ended on a quiet note, but many think that the Wall Street roller coaster ride is likely to continue — and that there may be more stomach-churning drops before the cars return to the platform.
“Heightened volatility is here to stay,” said Sam Stovall, chief investment strategist for Standard Poor’s equity research.
“The markets are much more interconnected than they have ever been, and new players are exacerbating the swings,” he added. Investors’ memories of 2008 are “very fresh and will cause them to sell first and ask questions later.”
Further undermining investor confidence is the fact that nearly all of the Western markets appear to be moving in lockstep, undergoing disruptive episodes simultaneously. That makes it difficult for investors to find a safe place to park their money — hence the rush to cash and other havens like United States bonds and gold — and stirs even more anxiety about interconnected risks between the European and American debt crises.
“This has been an unbelievable week. You just had fear totally take over,” said Scott Wren, the senior equity strategist for Wells Fargo Advisors. “And the problems have not been solved. European sovereign debt issues are not going to go away. The debt and deficit situation is not going to go away.”
On both sides of the Atlantic, investors had been bracing for a sell-off on Monday, after Standard Poor’s stripped the United States of its top credit rating. The S. P. plunged 6.66 percent. Tuesday, the Federal Reserve provided investors with a whiff of relief when it pledged to keep interest rates near zero for the next two years. The S. P. leaped 4.7 percent on the news.
The European Central Bank also moved to steady the markets, buying Italian and Spanish bonds to calm investor concerns that those countries would not be able to pay their debts.
The rally did not last long. By Wednesday morning, American and European bank stocks were under attack as investors feared a repeat of the crisis or another recession. The S. P. lost 4.4 percent.
On Thursday, upbeat earnings news and reports of a ban on short-selling by several European countries, provided relief. The S. P. jumped 4.6 percent. Friday, upbeat retail sales helped break the up and down cycle and the S. P. was up half a percent, ending the week 1.7 percent lower.
“The markets are having a lot of trouble assessing the full extent of this,” said Tobias Levkovich, Citigroup’s chief United States equity strategist. “We are used to volatility, but these intraday swings are just remarkable.”
Analysts and others on Wall Street who were doing a postmortem on the turbulence had plenty to choose from. New data suggested the United States economy was worsening and could even slip back into a recession, forcing investors to scale back their growth expectations. The downgrade of government bonds by Standard Poor’s further rattled confidence among consumers and businesses. On Friday, despite the rising retail sales, preliminary data for one of the leading barometers of consumer confidence fell in August to its lowest levels since May 1980.
In addition, there are growing concerns about the solvency of European governments and fears that troubles in its financial system could spread to American shores.
Still, the Euro Stoxx 50, an index of large companies on the Continent, fell 2.9 percent last week and is down nearly 12 percent this year. That is nearly double the 6.3 percent decline of the S. P. 500 since January.
Julie Creswell and Ron Lieber contributed reporting.
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