NEW YORK -- Weakened by worries about high share prices and the stagnating job market, Wall Street gave up all its 2004 gains in just two days as terror fears shook even the most intrepid bargain hunters.
It's still not clear who was responsible for the coordinated railway bombings Thursday that killed nearly 200 commuters in Madrid. But concerns that it might have been an al-Qaida attack rather than the work of a local separatist group sent the Dow Jones industrial average spiraling officially into a correction, down 5.7 percent from last month's high. The Nasdaq composite index plunged nearly 10 percent from its January peak.
Stocks snapped back Friday as investors fished for good deals, but all the major indexes ended the week substantially lower. With little market-moving news ahead, analysts believe the incentive to keep buying may not last.
The government's March jobs report, due in three weeks, could galvanize investors, but hopes for an upside surprise are dim; many blame the current doldrums on February's deeply disappointing employment data. The market's next meaningful turn will likely be determined by first-quarter earnings, analysts said.
"Until we get a better idea where the (earnings) numbers are coming in, we'll be driven by random events," said Janna Sampson, co-manager of the AmSouth Select Equity Fund. "It's a market that doesn't quite know what to do with itself."
Most professional investors agree the terrorist attacks in Spain will not have a lasting impact on the domestic markets. But such events do exacerbate volatility, and in the current environment it doesn't take much to swing trading.
That unevenness is likely to continue as the inexpensive and risky stocks that propelled last year's rally give way to larger, more stable companies, said James L. Moffett, portfolio manager for UMB Scout WorldWide fund.
"If I was an individual buying stocks, I might be a little more cautious over the next few weeks," Moffett said. "This is part of the process that leads to a leadership change. ... You get a cross current with a sloppy market in between."
Although smaller tech shares seem attractively resilient now, they may not be the best long term investment, he said. Tech bellwethers like Microsoft Corp. and Dell Inc., consumer staples like Kimberly-Clark Corp. and Anheuser-Busch Cos. Inc., and food stocks such as General Mills Inc. and Sysco Corp. are likely to provide greater stability and more reliable gains, analysts said.
"Their earnings are more stable, they gyrate less, they present less of a risk," said Sampson. "If you think the market has gotten ahead of itself, they're less likely to be off the mark at earnings time."
For small investors, many of whom are just now returning to the equity markets in large numbers through mutual funds, the recent slide may be frustrating. But short-term pricing changes shouldn't be a huge source of concern if they're investing for the long haul.
"I'm not changing my strategy at all, I'm holding for the long term," said Avi Horwitz, an accountant in New York who belongs to an online investment club. "If a company is a quality company, this may be a buying opportunity if their stock is down for no good reason."
Horwitz, whose portfolio includes Intel Corp., Pfizer Inc., Home Depot Inc. and TJX Cos., the operator of T.J. Maxx and Marshalls discount stores, said he prefers "800-pound gorillas - companies that are going to be there no matter what." It gives him a sense of security, and lets him breathe more easily through market shudders.
"All the external stuff is irrelevant if you can buy a good company at the right price," Horwitz said. "The fact of the matter is, nobody ever gets in at the bottom and out at the top."
The Dow slid 355.47 or 3.4 percent, during the week, finishing at 10,240.08. The Standard & Poor's 500 index shed 36.27 or 3.1 percent, to close at 1,120.57.
The Nasdaq lost 62.90 or 3.1 percent, closing the week at 1,984.73.
The Russell 2000 index, which tracks smaller company stocks, closed the week 16.70, or 2.8 percent lower, at 582.84.
The Wilshire Total Market Index, which tracks more than 5,000 U.S.-based companies, ended the week at 10,968.18, off 346.24 points from last week. A year ago, the index was 7,896.37.