Fear took over the American stock market in January -- and the results weren't pretty at all.
Even though the Dow surged 397 points on Friday, it still lost 5.5% of its value in January. That is the deepest monthly decline since the freakout of last August.
The Nasdaq fared even worse, sinking nearly 8%, its worst month since May 2010 when the infamous flash crash spooked investors.
January got off on a terrible note, with panic about the slowdown in China and crashing oil prices sending the Dow to its worst 10-day start to a year on record going back to 1897.
"Gut-wrenching drama" is how Peter Kenny, a veteran of turmoil on Wall Street, describes it. The independent market strategist pointed to "extreme fear" about the meltdown in oil prices and plunging stock prices in China.
Investors sold stocks of all stripes, including ones in the previously-booming tech world. Even Netflix (NFLX), which skyrocketed 134% in 2015, plunged 21% in January.
"Clearly this was an awful month. The selling was more about sentiment than a change in the actual fundamentals," said Russ Koestrich, global chief investment strategist at BlackRock.
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But the good news for U.S. investors is January is finally over -- and stocks did mount a serious comeback late in the month. The Dow finished the month 1,015 points higher than its lowest point of 15,451 on January 20.
"January was a schizophrenic month -- in the extreme," Kenny wrote in a note on Friday.
The rebound was driven by a series of factors, including a realization that if the U.S. avoids a recession -- as most economists think it will -- beaten-down stocks could be a good buy.
"We're not in the meltdown people were worried about in early January. We took valuations to the point where people were willing to dip their toe back into certain markets," said Koesterich.
Wall Street also managed to decouple a bit from the chaos in China. Stocks there plummeted 23% in January. Investors may have finally realized that China's ultra-turbulent stock market isn't a great proxy for what's actually going on in the world's second-largest economy.
Related: Investors should focus on China's economy, not stocks
The other big thing that happened was crude oil prices stopped crashing. Oil bottomed at a fresh 12-year low of $26 a barrel on January 20, the same day the stock market did, and has since surged back to $33.50.
That was good because Wall Street has become obsessed with the day-to-day moves in the oil market, for better or worse. It's been fueled by a focus on the many downsides to cheap oil: plunging energy profits, trouble for junk bonds, job losses in the oil patch and trouble in emerging markets. Investors are also scared that cheap oil is an early economic warning sign that suggests an alarming slowdown in global demand.
BlackRock's Koesterich thinks the link between oil and stocks makes little sense.
"It's an overreaction and misinterpretation. Oil is going down because we just have too much of it. It's not telling you anything about the state of the economy," Koesterich said.
Related: Why the stock market is obsessed with oil
Another force lifting stocks now: help from global central bankers. After the European Central Bank hinted at more stimulus, the Bank of Japan gave investors a big gift on Friday by unexpectedly cutting interest rates into negative territory.
Money printing from central banks hasn't juiced the global economy but in recent years, but it has lifted risky assets like stocks, at least temporarily.
"That safety net that central banks have been putting under markets for years is reasserting itself," said Koesterich.
It's important to remember that while markets have stabilized, they remain on edge. CNNMoney's Fear & Greed Index is currently flashing "fear," though that's actually an improvement from the "extreme fear" it displayed before trading started on Friday.
Will February bring about a rebound or more scary selloffs? That may be determined by how the U.S. economy weathers the global storm, where oil prices go and whether stocks can stay decoupled from China.
If all of that happens, "we may have a run at regaining some of the ground lost at the outset of the year," said Kenny.
