Rising oil prices, mixed earnings reports and a troubling uptick in inflation caused stock prices to whipsaw after the previous week's dramatic sell-off.
The Dow Jones industrial average plunged 115 points on Wednesday to close just north of 10,000, then rallied back 206 points on Thursday. By Friday, traders were so befuddled they rushed to buy and sell on any scrap of news or rumor.
The volatility sent some investors to the safety of Treasury bonds, which had the effect of driving down interest rates on the benchmark 10-year bond to 4.25 percent.
The week's upbeat news included some gangbuster earnings reports from tech companies such as Google, Yahoo and Intel, major banks, and big exporters such as Caterpillar that are feeling the salutary effects of a falling dollar on their export sales.
But weighing on the market was another spike in crude oil prices -- the biggest weekly increase in three months -- which ended the week above $55 a barrel in New York trading. High energy prices are having a depressing effect on consumer confidence, consumer spending and the profit of consumer products companies. They're also a disaster for energy-sensitive industries such as airlines and automakers, which weighed in with disappointing earnings.
Energy was also a big factor in the sharp rise in both consumer and producer prices in March, the government reported. So far this year, consumer prices have been rising at an annual rate of 4.3 percent. Even excluding more volatile food and energy prices, the "core" inflation rate is still above 3 percent.
To some analysts, all this adds up to a picture of an economy heading into a period of "stagflation," a nasty combination of slow or negative growth and accelerating inflation that, once it gets going, is hard to shake off. To fight inflation, the Federal Reserve is forced to push up interest rates and tighten the money supply, which in the short run has the unfortunate effect of slowing the economy even further. At a hearing on Capitol Hill, Fed Chairman Alan Greenspan played down the stagflation threat.
Share prices weren't the thing on the minds of traders and investors. In a move that could reduce the importance of its traditional trading floor, the New York Stock Exchange announced plans to merge with electronic rival Archipelago Holdings, which would give NYSE customers the option of buying and selling derivatives and Nasdaq-listed stocks. Not to be outdone, Nasdaq responded with an agreement to buy Reuter's Instinet exchange, which will allow its customers to trade in NYSE-listed stocks.