For investors, August was one for the record books _ but not in a good way.
Hurricane Irene didn't shut down stock exchanges, Europeans banks didn't collapse and stocks narrowly avoided dropping into bear market territory. But it was brutal month nonetheless. On Wednesday, the Standard & Poor's 500 index closed at 1,218.89, up 0.5 percent for the day, but down 5.7 percent for the month. It was the worst August for the S&P in 10 years.
It was a somber ending to a month of troubling firsts for the markets:
_ Record volatility: The Dow Jones industrial average swung more than 400 points up or down four days in row, a first in its 115-year history. The Dow was as high of 12,132 for the month and as low of 10,719 in the span of 23 trading days.
_ U.S. downgrade: Standard & Poor's cut the U.S. credit rating from triple-A, an unprecedented move.
_ New high for gold: Investors fearing high inflation or turmoil in Europe rushed into the perceived safety of the metal _ or the possible profits of rising gold prices _ pushing its price to an all-time high of $1,891.90 an ounce on Aug. 22.
_ New low for Treasury yields: As they flocked to this safe haven, investors drove yields on the 10-year Treasury note to below 2 percent for the first time in a half century.
The message from all the tumult: More than two years into the recovery, investors are still worried, uncertain and quick to sell at a hint of economic trouble. Says Sam Stovall, chief investment strategist at Standard & Poor's equity research, "Fear pretty much drove equity, bond and gold prices."
In retrospect, stocks didn't have a fighting chance.
In late July, investors were already on edge over the possibility Congress would fail to raise the debt ceiling and cause the U.S. to default. Then, two days before the start of August, the government reported that the economy had grown at annual pace of 0.8 percent in the first half of the year. Nine of the past 11 recessions since World War II have been preceded by a period of growth of 1 percent or less.
The first week of the new month hit investors hard. A report on Monday, Aug. 1, showed manufacturing was barely growing. And though lawmakers finally did agree to raise the debt ceiling the next day, the relief was fleeting. Late that Friday, the S&P stripped the U.S. of its top rating.
What followed was one of the scariest weeks in Wall Street history. The Dow plunged 634 points on Monday, Aug. 8, its steepest fall in more than 2 1/2 years. Then it flipped-flopped between 400-plus point gains and losses for another three days, unprecedented in the index's history.
"We loved the volatility," says Seth Glickenhaus, 97, a trader since the Great Depression and a net buyer in August at his eponymous money management firm. "It gives us a chance to buy things when they're down and sell when they're up."
But for many investors, the rollercoaster was unnerving, feeding fears that the market and the economy had become unstable.
The next two weeks brought more bad news, and two new records. By mid-August, fears mounted that European banks holding government bonds of deeply-indebted countries might not be able to access short-term loans to fund their daily operations. That revived memories of the credit freeze that swept across the U.S. and Europe after investment bank Lehman Bros. collapsed in Sept. 2008. Investors fled to the usual suspects _ Treasurys and gold.
On Monday, Aug. 22, gold settled at a record $1,891.90 an ounce, a gain of 28 percent in less than two months. By that Friday, stocks had fallen again, and were 16 percent lower than they had been just four weeks earlier.
The good news is stocks have generally been rising since then. One reason: Investors apparently interpreted last Friday's news that the Federal Reserve Chairman Ben Bernanke wasn't planning any new stimulus for the economy to mean that maybe the economy isn't in such bad shape after all.
Richard Bernstein, former chief strategist at Merrill Lynch who now heads his own money management firm, isn't convinced.
"It's hard to see a sustained bull market when no major economy is trying to stimulate their economy," he says.
Bulls like to point out that for all the focus by investors on the economy, the biggest thing that matters for stocks is profits _ and Corporate America has not disappointed in that regard. Despite predictions that they would fall, earnings for the S&P 500 companies rose an average 12 percent in the second quarter, according to research firm FactSet. It is the seventh quarter in a row of gains greater than 10 percent.
If companies can keep it up, and the U.S. avoids recession, shares might keep rising.
The safest bet, though, might be just more volatility.
Glickenhaus, the nonagenarian trader, says he expects stock prices to end 2011 pretty much where they stand today _ though with a lots of big moves in between.
"The market seems to be overreacting to the news so they'll be more up and down days," he says.
AP Business Writer Matthew Craft contributed to this report.