It was a horrific end to a week dominated by fear and uncertainty in global markets, further rattling investors who were already struggling with a witch's brew of economic red flags.
Japan's deadly earthquake added to fears about the durability of the global recovery, prompted by tension in the Middle East, European debt woes, surging oil prices and inflation in China.
Stocks rebounded modestly Friday as traders judged that Japanese refinery shutdowns would curb demand for oil, bringing prices back to around $100 (U.S.) a barrel and easing concerns that rising energy costs will wreak havoc on companies' profits.
The benchmark Standard & Poor's 500 Index gained 0.5 per cent Friday, but lost 1.3 per cent on the week. The S&P/TSX index, hurt by sinking commodity prices, edged higher Friday but posted a weekly drop of close to 4 per cent.
Recent optimism about the global rebound was tempered by unpleasant reminders that a range of trouble spots could slow or upend the recovery from the worst downturn since the 1920s.
"This has been a bad week for the world," said Barry Schwartz, vice-president and portfolio manager at Baskin Financial Services in Toronto. "The geopolitical crises that were starting to build up at the start of the year now seem to have won the battle over a rebounding economy and stronger corporate profits, and the 'fear trade' is now back. [Japan]just adds to the confusion."
In the Middle East and North Africa, flush with political conflict, investors let out a sigh of relief Friday that a planned "Day of Rage" in Saudi Arabia didn't pan out because a heavy police presence kept protesters away. However, the violent impasse in Libya continues to loom large over the region, and there are growing fears that another spike in oil prices could cripple the ability of households around the world to spend money on much else.
In China, a report Friday showed inflation accelerated more than expected last month, stoking fears that policy-makers in the world's second-biggest economy might move too aggressively to contain price gains and thus temper a vital source of global growth at a fragile moment. Another report Friday showed consumer confidence in the United States dropping as Americans brace for more expensive gasoline.
And in Europe, a day after rating agency Moody's downgraded Spanish government debt and reminded investors that Europe's sovereign-debt saga is far from over, the yield on Portuguese five-year debt climbed to a euro-era record, as speculation of a bailout for the country grew. Portugal's deepening problems come just as European Union leaders were trying to bridge gaps among key EU members over how to solve the debt crisis before a meeting later this month.
"At the end of the day, revolts and riots and changing of governments in Middle Eastern and North African countries will actually turn out to be good things, hopefully," said Mr. Schwartz. "But at the beginning of the year, we said barring a default of a euro zone member, stocks should go higher, and we're still facing the possibility of that [default]event." Investors are currently focused on risks, but they may eventually look past nagging uncertainties after a brief period of volatility. Mr. Schwartz pointed out that last year, amid sovereign-debt problems from Greece to Dubai and the BP oil spill, investors focused on rising corporate profits and kept stocks soaring. In any case, he said, markets have had a good run for eight months and most investors have recovered losses they incurred during the slump.
Also, analysts stressed Friday that the confluence of ominous-looking signs this week may include some silver linings. For instance, Henry Mo, vice-president of global and U.S. economics at Credit Suisse in New York, noted that China being forced to take steps to keep its still-scorching economy from overheating is, ultimately, a positive development.
"It's not a bad thing to cool down that economy a little bit and move to a more sustainable pace of expansion," Mr. Mo said in an interview. "If you look at the global economy this year, we expect developed markets to expand relatively faster while emerging markets cool down a little bit, and this is good for a better balance for the world as a whole.''