Will the third time be a charm -- or a bust?
The stock market, slammed Friday by recession fears after a dismal jobs report, is suffering through its third major decline since July.
Key indexes closed either near or below their levels in November, which marked the bottom of the second sell-off.
The Dow Jones industrial average sank 256.54 points, or nearly 2%, to 12,800.18. That left it 0.4% above its low of 12,743.44 reached on Nov. 26.
Broader indexes were hit harder than the blue-chip Dow. The Russell 2,000 small-stock index fell to a 15-month low, barreling through its Nov. 26 nadir of 735.07 to finish at 721.60, off 3.1% for the day. It is down 15.7% from its record high reached in July.
The Nasdaq composite index, dominated by technology shares, plunged 98.03 points, or 3.8%, to 2,504.65, below its Nov. 26 close of 2,541. It was the index's biggest one-day percentage drop since Feb. 27.
Stocks tumbled in August as the housing and mortgage markets' woes deepened, then rebounded sharply in September after the Federal Reserve began cutting interest rates. The Dow reached its all-time high of 14,164.53 on Oct. 9.
The market dived again in October and November, then resurged for several weeks as the Fed and other central banks took fresh steps to ease the global credit crunch triggered by the sub-prime mortgage blow-up.
The net result was that many investors were rewarded for buying into the last two market sell-offs, at least if they bought after the Dow fell below 13,000.
This time? Some analysts warn that the difference now is that the economy appears at much greater risk of sliding into recession than it did in August or November.
That may mean stock bargain hunters won't feel as bold as they did with the Dow at 12,845 in mid-August or 12,743 in late November.
"There's no question that the fundamentals today are a lot worse" than during the previous two market sell-offs, said Peter Boockvar, equity strategist at investment firm Miller Tabak & Co. in New York.
The government said the economy created a net 18,000 jobs in December, the weakest growth in four years. On Wednesday the Institute for Supply Management said its index of U.S. manufacturing activity suggested a contraction in December. It was the index's weakest reading since April 2003.
Many investors who have remained bullish in recent months have cited surprising strength in job creation and continued growth in the manufacturing sector. Those factors would provide support for the economy and thus for corporate earnings and share prices, optimists said.
With those pillars eroding, investors should be very cautious about jumping into the market now -- even though "buying the dips" worked well in August and November, said Doug Cliggott, investment chief at Dover Management in Greenwich, Conn.
"I think you should [be] as defensive as all get out," he said. He favors sectors such as utilities, whose earnings would be expected to hold up even if the economy weakens further.
The Dow utility stock index was one of the few gainers on Friday, rising 0.7%. Edison International, the parent of Southern California Edison, added 15 cents to $53.38.
Investors seeking a haven also snapped up Treasury securities, driving yields down for a sixth straight session. The 10-year T-note yield slipped to 3.87% from 3.89% on Thursday and 4.08% a week ago.
Some money managers said they still were betting on a continuing economic expansion, albeit at a slower pace than in recent years.
"We think the U.S. misses recession," said Michelle Clayman, chief investment officer at New Amsterdam Partners in New York. Consumer spending has slowed but hasn't fallen off a cliff, she said. That spending accounts for 70% of U.S. economic activity.
She said her firm was sticking with some of the tech shares that have been beaten up on recession jitters in recent days, including Cisco Systems and Hewlett-Packard. Cisco fell 63 cents Friday to a seven-month low of $26.12; HP tumbled $2.78 to $46.87, its lowest since August.
Market bulls also point to the likelihood that the Fed will continue to cut short-term interest rates. Lower rates historically have been a tonic for what ails the stock market. Yet the economy slipped into recession in 2001 even though the Fed was slashing rates that year, analysts note.
James Paulsen, investment strategist at Wells Capital Management in Minneapolis, said he believed the economy was stronger than recent data might suggest and that investors weren't noticing that the credit crunch was easing, as signaled by falling rates on short-term loans between banks.
That could mean stocks are again setting up for another rebound, he said.
"I think there's more bad news behind us than in front of us," Paulsen said.
Among the day's market highlights:
* Falling stocks outnumbered rising issues by more than 3 to 1 on the New York Stock Exchange.
* The Standard & Poor's 500 index dropped 35.53 points, or 2.5%, to 1,411.63, just above its November low of 1,407.22. The index is down 9.8% from its all-time high reached Oct. 9.
The Nasdaq composite Friday was down 12.4% from its 2007 high reached Oct. 31.
* For the week the Dow lost 4.2%, the S&P 500 fell 4.5% and the Nasdaq index gave up 6.3%.
* Intel helped pull the tech sector lower after JPMorgan downgraded the stock to "neutral" from "overweight," citing fears that computer makers slowed chip orders late in the fourth quarter. Intel lost $2 to $22.67, its sixth straight drop.
* Many financial issues fell to fresh multiyear lows, including Merrill Lynch, down $1.70 to $50.29, and Countrywide Financial, down 35 cents to $8.42.
* Stocks were broadly lower overseas. Japan's Nikkei-225 index dropped 4% to 14,691, its lowest close in 1 1/2 years.
* Crude oil futures, which briefly traded at $100 a barrel Wednesday and Thursday, eased $1.27 to $97.91.
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