Wall Street roller coaster: Is the 'scary' ride over?

The US stock market had a wild week, with two days of free fall followed by a sharp rebound. The market ended the week higher, but is on course for its worst month in more than three years.

Well, that was exciting.

Days after China threw the biggest scare into Wall Street in years, US stocks have come surging back and ended the week Friday on a placid note that suggested the worst may be over – for now.

But investors are buckling their seat belts for more turbulence ahead.

"That kind of volatility is pretty scary," said Hans Chang, 33, who was visiting New York on Friday. 

The Dow Jones industrial average fell a scant 11.76 points Friday, or 0.1 percent, to 16,643.01, capping a week that saw stomach-churning losses and gains of around 600 points per day. The Standard & Poor's 500 index rose 1.21 points, or 0.1 percent, to 1,988.87. The Nasdaq composite added 15.62 points, or 0.3 percent, to 4,828.32.

US stocks went into their swoon last week, mostly over signs of a slowdown in China, the world's second-biggest economy.

As the Christian Science Monitor's Mark Trumbull wrote on Thursday:

[W]ith or without a sharp slowdown, the bloom is off China’s rose – and that may be a good thing. The popular view of China as an unstoppable economic giant was never accurate. The market plunge may prompt people inside and outside China to take a more realistic view that incorporates China’s weaknesses and the transition from its liftoff era to the likelihood of slower growth in the future.

Before the six-day losing streak had ended, the Dow had plummeted 1,900 points and the S&P 500 was undergoing its first "correction," a decline of 10 percent or more, in nearly four years.

But stocks soared at midweek, cutting the Dow's losses nearly in half, in a rally analysts attributed to bargain-hunting, signs that the Federal Reserve may hold off raising interest rates this fall, and a new report that said the US economy is growing at a more robust rate than previously believed.

Why September could stay bumpy

The concerns that triggered the sell-off remain: slumping oil prices, a slowing Chinese economy, weak corporate earnings forecasts and uncertainty over interest rates.

That means there's likely to be more market volatility ahead, something that history backs up. September has been the worst month for stocks.

"For the last few years, let's face it, there's been very little volatility," said JJ Kinahan, TD Ameritrade's chief strategist. "We've had a very impressive rally. Not that we can't go higher, but it's not going to be an easy path to get there."

The S&P 500 is still nearly three times higher than its post-2008 financial crisis low in March 2009. The Dow is up roughly 2 1/2 times higher.

Despite the bounce-back this week, stocks are on course for their worst monthly performance in more than three years. The S&P 500 is down 5.5 percent in August, and the Dow is down 5.9 percent.

But for some investors, like James Day, a data management specialist in Ferndale, Michigan, the stock market swoon is a signal to buy low and boost his contributions to his 401(k).

"I'm not looking to retire tomorrow, so as far as I'm concerned, I have time," said Day, 43. "If I don't think I'm staring down the barrel of some long-term recession or unemployment, I look at these dips as an opportunity."

Investors can expect the volatility to continue at least until the market gets a better idea from the Fed on the timing of an interest rate increase, something many investors fear could put a damper on the U.S. economy.

Federal Reserve Vice Chairman Stanley Fischer said Friday that before the recent turbulence, there was a "pretty strong case" for raising rates in September. But he said the Fed is watching how events unfold.

Traders and strategists have often described the US stock market as overbought. Even with the wild swings this week, investors are paying close to $18 for every $1 of earnings in the S&P 500 — above the $15 investors have historically paid for stocks after World War II.

"It's still an expensive market," said Kevin Dorwin, managing principal of San Francisco-based Bingham, Osborn & Scarborough. "We still need to see earnings growth or valuations improve, and absent that, it's hard to see how the market can move up."

Rob Lee, 64, of Melbourne, Australia, said he invests only small amounts of money in "very safe securities" because he wants to avoid the risk of sharp drops in the market like the one last week. But he added: "It'll bounce back. It always does."

By the numbers

1,090: The number of points that the Dow Jones industrial average lost in the opening minutes of trading Monday.

1,300: Points between the lowest point and highest point this week for the Dow.

12.3: The percentage point decline in the Standard & Poor's 500 index from its all-time high of 2,130.82, set in late May, and its close on Tuesday. A drop of that magnitude is defined as a correction in Wall Street jargon. Later in the week, the S&P rose out of correction territory.

6: The number of years since the price of oil has seen the lows it hit earlier this week. That was in the depths of Great Recession.

2: The number of sectors in the S&P 500 that have gained this year. Health care stocks and consumer discretionary stocks(including retailers, home builders and entertainment companies), in case you were wondering.

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AP Business Writers Steve Rothwell, Ken Sweet and Marley Jay in New York contributed to this report.