Widespread fear stokes market volatility

Stock markets gyrated in another roller coaster session yesterday, with the Dow Jones industrial average plunging nearly 300 points before recovering most of the losses in a late afternoon rally.

With debt crises in Europe, new tensions in Korea, overhaul of financial regulation in the United States, and memories of the fall 2008 crash still fresh, investors should expect more of the same in coming months, analysts said.

“There is an above-normal degree of uncertainty on some pretty important issues, and they’re not going to be solved in a day or week,’’ said Leo Grohowski, chief investment officer for BNY Mellon Wealth Management of Boston.

Stock markets are trying to find their way through a confusing set of signals. On the one hand, for example, there are improving economic data; on the other, concerns that the debt crisis that began in Greece could spread to other nations, damage the European banking system, and derail the economic recovery.

“What’s happening in the market is very separate from the economy,’’ said Duncan W. Richardson, chief equity investment officer at Eaton Vance Corp. of Boston. “There’s a battle going on between fear and fundamentals, and right now it’s all about fear.’’

Yesterday, for example, the Conference Board, a nonprofit research group in New York, reported that consumer confidence rose for the third consecutive month amidst an improved outlook on jobs.

But on Wall Street, fear is trumping optimism, despite signs of a strengthening US economy, including a labor market that has added more than 500,000 jobs in the past two months. Throughout much of yesterday’s trading session, US investors sold, following steep sell-offs in Asia and Europe.

In the end, the Dow fell nearly 23 points, closing at 10,043.75. The technology-heavy Nasdaq composite fell 2.60 points to 2,210.95. The broader Standard & Poor’s 500 index rose slightly to 1,074.03.

Many economists expect the current turmoil to slow the US recovery, but not plunge the economy back into recession.

Kenneth Rogoff, a Harvard University professor who studied 800 years of financial crises in his book “This Time Is Different,’’ said sovereign debt crises, such as those in Europe, typically follow financial crashes. But like earthquake aftershocks, they tend not to be as destructive as the initial event.

Debt crises often occur after governments use deficit spending to shore up banks and soften the impact of recessions, and investors lose confidence that nations can repay the debt.

Such events tend to be less destructive because policy makers and markets, after going through the financial crises, are better prepared for them, Rogoff said. In addition, when nations default — which is not unusual — investors are typically repaid some of their money.

“Whenever you have international financial crises, there inevitably follows a wave of sovereign debt crises and defaults within two or three years,’’ Rogoff said. “At least in the past, these waves have been painful; they’ve slowed the global recovery but not derailed it.’’

Heightening fears have been events such as the May 6 “flash crash,’’ when the Dow, for a variety of technical reasons, dove about 1,000 points in several minutes, reviving memories of the free fall that followed the collapse of Lehman Brothers nearly two years ago.

“A lot of this has to do with investor psychology, given the backdrop of what happened in 2008,’’ said Tom Manning, chief investment officer at Silver Bridge Advisors in Boston. “There’s enough risk that some investors may want to step aside, but we don’t anticipate that this is going to be Part 2 of the global financial crisis.’’

US stock values have declined about 10 percent since hitting a recent peak above 11,000 near the end of April, when the Greek debt crisis worsened and threatened to undermine other nations with heavy debt loads, such as Spain and Portugal. The 16 nations that use the euro and the International Monetary Fund have crafted a rescue package of nearly $1 trillion to stem the crises, although investors remain skeptical about its prospects.

Yesterday, the euro weakened against the dollar, coming within a half-cent of a four-year low before rebounding to $1.23.

While European problems may have sparked the sell-off, analysts said other factors have probably contributed. Some are technical. For example, stock values were rising steadily for more than year, appreciating as much as 80 percent from the bottom in March 2009.

Such extended rallies typically experience a retreat, known as a correction, as investors reassess conditions and look ahead to potential risks.

Analysts say stocks could fall somewhat further, but this retreat should be temporary while uncertainties, from European debt to the US overhaul of financial regulation, are resolved.

Many said the underpinnings of the rally, such as corporate profits, remain solid, although they have been obscured by the recent turmoil.

Robert Gavin can be reached at rgavin@globe.com.