U.S. stock markets performed strongly in the first six months of 2011, despite an alarming six-week slide precipitated by Europe's debt crisis and slowing growth.
But a rally in the last week of the period left some analysts more bullish about the second half of the year.
"If the economy re-accelerates in coming months and no significant negative surprises arise, the market may surpass our year-end target range," said Stuart Freeman, chief equity strategist at Wells Fargo Advisors.
"However, we believe volatility is likely to remain high over the next several months."
The markets ended the period well off their peak from late April and early May, when the Dow surged to nearly 12% above its beginning-of-year level.
The Dow Jones Industrial Average of 30 blue-chip stocks finally closed the six months on Thursday up 7.2% at 12,414.34.
The broader S&P 500 was 5.0% higher at 1320.64, while the tech-heavy Nasdaq Composite climbed 4.6% to 2,773.52.
Healthy Earnings Drove Early Gains
The rally in the first four months of the year was driven by surprisingly healthy corporate earnings, which suggested that the U.S. economy had finally turned the corner on the financial crisis.
With the economy well-lubricated from the Federal Reserve's loose monetary policy, it appeared the recovery was well under way.
"Once we started getting earnings reports that were much stronger than anticipated, that really added a little bit of octane and refueled the market's advance," said Sam Stovall, chief investment strategist at Standard & Poor's Equity Research.
But then markets hit some nasty potholes -- a crippling earthquake, tsunami and nuclear disaster in Japan; unprecedented unrest in the Middle East; and fears that some European governments could default on their debt.
The Dow plunged 2% in one day after Japan's quake, then regained much of its ground in the following weeks.
But the aftereffects of the disaster -- which roiled the supply chains of numerous companies -- weighed heavily on the markets as they became apparent, said Marc Pado, U.S. market strategist for Cantor Fitzgerald.
"The supply disruptions out of Japan were more extensive than people gave them credit for initially," Pado said.
Turmoil in the Middle East caused a run-up in the price of oil that squeezed consumer spending and hurt growth.
Energy stocks benefited from that: The largest U.S. oil company, ExxonMobil, saw its shares rise 10.4% in the first half of the year.
'High Wall of Worry'
But for most people, the faltering recovery was bad news. Last week the Fed slashed its forecast for the growth of U.S. gross domestic product to between 2.7% and 2.9%. In the heady days of January it forecast growth as high as 3.9%.
Fears about Europe's debt crisis also intensified in the spring, as traders worried about the potentially destabilizing effects of a Greek default.
That battered financial stocks, which already had been pummeled by worries over increased regulation and continuing fallout from the 2007-2008 subprime mortgage fiasco.
The KBW Bank Index, an average of 24 major U.S. bank stocks, has fallen 7.5% since the start of the year.
"There was a fairly high wall of worry. First off was the Japan earthquake and tsunami. We also started to hear once again about the sovereign debt woes," said Stovall of Standard & Poor's.
"And then we started to get additional downshifting, if you will, of economic growth projections," he added.
Many Analysts Feeling Bullish
The good news is that stocks rallied four days in a row to end June amid optimism that Europe would resolve the Greek debt crisis -- and many analysts are bullish about the year's second half.
The six-week slide from April to June was alarming to many investors but not that steep by historical standards, said Pado of Cantor Fitzgerald.
"It really wasn't all that dramatic. The S&P was off 7.2% at the worst from the high," Pado said. "If you look back throughout history ... pulling back 7.2% was really nothing special."
Copyright Agence France-Presse, 2011