What a Week: World of Hurt

The stock market lost its footing this week, and Goldilocks seemed to fall into a ditch.

After more than seven months of rallying, the U.S. stock market experienced a panic-ridden day -- Tuesday -- not seen since the immediate aftermath of the Sept. 11, 2001, terrorist attacks. The three major indices had their worst week since March 2003.

The main culprit? China's stock market. Its near-130% surge last year was one of the prime examples of investors ramping up leverage to take on more risk.

Investors awakened Tuesday to an 8.8% plunge in China's Shanghai Composite index, and the selling began. Margin calls kicked in and begat more selling. As the week progressed, the vehicles that offered investors the opportunity for those leveraged bets, such as the Japanese yen carry trade (borrowing yen at a paltry 0.5% and investing in higher-yielding assets elsewhere), unwound as volatility increased.

After choppy sessions following Tuesday's rout, the Dow Jones Industrial Average closed down 4.2% for the week, 1% on Friday alone, to 12,114.10. The S&P 500 slid 4.4% on the week and 1.1% Friday, and the Nasdaq Composite fell 5.8% this week and 1.5% Friday, closing at 2368.00.

The price of crude oil jumped 1.2% this week to $61.64 per barrel, while gold slid 6.4% to $644.10 per ounce. The Treasury bond market rallied sharply as investors took the "flight to safety" route. The yield on the 10-year note fell to 4.51% Friday from 4.68% last week. The value of the yen rose 4% vs. the dollar.