NEW YORK — Illustrating the stock market's deep confusion about the economy, bad news about oil prices and jobs sent the Dow Jones industrials tumbling almost 400 points Friday, a day after the index rallied strongly on optimism about jobs and consumer spending.
The sharp reversal reflects a pattern of uncertainty that is leading investors to react frantically to each day's helping of news.
"It goes to show how bipolar the attitude is," said Paul Hickey, co-founder of investment research firm Bespoke Investment Group in Harrison, N.Y. "One day things can be great, and the next day things can be bad."
The Dow plummeted 394.64 points Friday, or 3.1%, to 12,209.81. It was the blue-chip average's biggest drop since February 2007.
Other major indexes suffered similar declines.
The Standard & Poor's 500 sank 43.37 points, or 3.1%, to 1,360.68. The Nasdaq composite index lost 75.38 points, or 3%, to 2,474.56.
The market fell sharply in the morning, after the Labor Department reported that the unemployment rate jumped in May to 5.5%, its highest level since 2004. The half-point increase from 5% in April marked the rate's biggest monthly increase in 22 years. Economists had expected only a tick up to 5.1%.
After absorbing the job news, stocks gradually extended their losses as oil prices ballooned throughout the day.
Crude futures rocketed up $10.75 to settle at $138.54 a barrel, exceeding their record close set two weeks ago. It was the biggest one-day rise in dollar terms in the New York Mercantile Exchange's history.
Oil's rally was triggered in part by an analyst's prediction that crude would hit the $150-a-barrel mark by the Fourth of July.
The stock sell-off was the opposite of Thursday's trading, which boosted the Dow 214 points. Benign economic data and impressive retail sales raised hopes that the economy would sidestep the worst-case scenario.
But that optimism may have set the market up for disappointment. Though the economy shed fewer jobs last month than expected -- 49,000 versus analysts' consensus estimate of 60,000 -- so-called whisper numbers circulating on Wall Street had raised hopes for a better showing.
"That budding optimism in a lightly traded summer market was vulnerable to a correction on bad news," said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Va. "And when the jobs report came in, the market got crunched. The exclamation point was the over $10-a-barrel rise in crude prices."
The seesaw action shows that investors can't figure out which way the economy is going and are simply listing with each day's news.
"You're getting a lot of mixed signals out there," said Georges Yared, chief investment strategist at Yared Investment Research in Minneapolis. "The dots of bad news and good news just aren't connecting yet."
The market losses were widespread. Declining issues outnumbered advancers by more than 4 to 1 on the New York Stock Exchange. All 30 of the stocks in the Dow industrials lost ground, as did all 10 major industry groups in the S&P 500. And all 91 financial stocks in the S&P 500 fell, tumbling 5% as a group, dropping below their March low. The 24-member BKX bank index slid 5.3% to a five-year low.
Credit card stocks fell on concern that rising unemployment will lead to more defaults among cardholders. American Express dropped $2.78, or 5.9%, to $44.65. Capital One Financial retreated $3.47, or 7%, to $46.15.
Among brokerages, Morgan Stanley led the declines, tumbling $3.78, or 8.5%, to $40.81.
Washington Mutual sank $1.08, or 13%, to $7.53, losing its title as the largest U.S. savings and loan by stock value to Hudson City Bancorp. WaMu is still the largest thrift by assets.
Midwest regional bank National City dropped 40 cents, or 7.5%, to $4.95 after the Wall Street Journal reported that regulators had effectively put the company on probation.
A day after setting a record high, the Dow Jones transportation index lost 4.4%, led down by FedEx, which plunged $4.83, or 5.2%, to $88.86.
The transport average's railroad stocks also were pounded. Union Pacific plunged $3.76, or 4.6%, to $77.95.
Continental Airlines, which rallied Thursday after saying it would cut jobs and its fleet, slumped $1.33, or 8.8%, to $13.87.
Energy stocks fell as well, despite the surge in crude oil.
In the retail sector, J.C. Penney fell $1.99, or 4.9%, to $38.57. Sears Holdings slipped $2.52, or 3%, to $82.36, the lowest price since September 2004.
And General Motors dropped 83 cents, or 4.9%, to $16.22, its lowest level since August 1982.
But in a sign that some investors still believe the economy will strengthen soon, shares of small- and medium-size companies fell less sharply than their large-capitalization brethren. Smaller stocks tend to fall further on bad economic news and benefit more when the news is encouraging.
The S&P 400 mid-cap index was off 2.6%, while the Russell 2,000 small-cap index declined 3%.
Yields on government bonds fell along with stocks as recession fears had some investors seeking the relative safety of Treasuries. The yield on the benchmark 10-year T-note fell to 3.91% from 4.04% late Wednesday. Gold prices jumped.
The beginning of Wall Street's pullback weighed on European stock markets. Key indexes slumped 1.5% in Britain, 2% in Germany and 2.3% in France. Shares in Japan rose 1% before the release of the U.S. employment report.
Times Wire Services were used in compiling this report.