What a Week: Much Worse Than Expected

So much for the call of many Wall Street strategists that 2006 marks the return of large-cap growth stocks. A Friday bloodbath punctuated a volatile week marked by disappointing earnings from high-profile tech leaders.

In the second week of the year, the talk was all about how the Dow Jones Industrial Average would finally top 11,000. But now, only one week later, the Dow has lost all of the gains it had made in January and then some.

The tech-heavy Nasdaq Composite and the S&P 500 have kept some of their year-to-date gains, but they did not escape unscathed after three out of four sessions saw losses, including heavy selling on Friday. The week was shortened (mercifully for bulls, it turned out) by the Martin Luther King holiday on Monday.

Most of the damage occurred Friday, when the Dow dropped 213 points, or 2%, to 10,667. It was the Dow's biggest one-day drop since March 2003 and left the blue-chip index down 3.4% from a four-and-a-half year high of 11,043, reached on Jan 11.

Bigger losses were seen on the Nasdaq, which dropped 54.11 points, or 2.35%, to 2247.70 Friday. The tech-heavy index has fallen 3.6% from its Jan. 11 high of 2331.

The S&P 500 fell 23.55 points, or 1.83%, to 1261.49. The broad index is down 2.5% from its Jan 11 high 1294.

For the week, the blue-chip index lost 2.7%, the Nasdaq dipped 3% and the S&P fell 2%.

Obvious culprits for the bloodbath:

Disappointing earnings from high-profile companies that didn't meet Wall Street's lofty expectations.

Geopolitical tensions centered around Iran's nuclear ambitions, turmoil in Nigeria and new threats from Osama bin Laden, which all conspired to send crude oil prices above $68 per barrel.

Friday seemed to embody the doomsday scenarios about rising oil prices causing a slowing economy and slowing profits, as well as the ancillary threat of the cooling housing market.

But while these scenarios may eventually all play out, the evidence at hand seems to suggest that Friday was not the beginning of the end. The market came under pressure on Tuesday and Wednesday, amid disappointing earnings from most of the heavy guns of the tech world, including Intel (INTC), Apple (AAPL), Yahoo! (YHOO) and eBay (EABY). Crude oil prices were already surging, but market participants still showed a willingness to buy the dips, starting Wednesday afternoon and carrying through Thursday's session.