A horrific week on Wall Street has put the bears in command as the market braces for more bleak news from the US housing front and earnings that may show how companies are weathering the storm.
In the week ended Friday, the Dow Jones Industrial Average plummeted 4.05 percent to 13.522.02 as the blue chip index retreated from its highs of October 9 above 14,000 points. The broad market Standard & Poor's 500 index sank 3.92 percent to 1,500.63 and the tech-heavy Nasdaq tumbled 2.87 percent to 2,725.16.
The stock market was roiled over the past week by weaker-than-expected data from the struggling real estate sector, with new housing starting sliding to a 14-year low, and earnings reports from the financial sector that show the troubles spreading.
A struggling dollar and record high oil prices have also hurt sentiment.
Mary Ann Hurley said crude oil's jump above 90 dollars is worrisome for the outlook.
"The rise in oil and gasoline prices has traditionally acted as a tax on the consumer," she said. "Consumers have already started reducing their demand for oil due to higher prices, an apparent softening of the labour market, tightening of loan standards and the deteriorating housing and credit market sectors."
Analysts say reports Wednesday on existing home sales and Thursday on new home sales will show further declines in a market that some say is showing its worst declines in decades.
"The housing sector continues to slide, imparting downside risk to our already sub-trend forecast for economic growth," said Deutsche Bank analysts Joseph LaVorgna and Carl Riccadonna.
"While weak housing figures have been built into many economists' forecasts, including both ours and the Fed's, we think there is an element of 'seeing is believing' at play. Any further evidence that housing construction and sales have not yet bottomed may only reinforce the downward bias to growth estimates in the current and coming quarters."
The analysts said the problems may spread further to the financial sector and that reduced construction activity will mean higher unemployment and as a consequence, lower consumer spending.
In the coming week, Wall Street will see in addition to the economic reports the quarterly results from Apple, Boeing, Merrill Lynch and Microsoft, among others. Many will be looking at forward guidance from the companies instead of the backward-looking profit figures.
The ray of hope for Wall Street is that many expect the Federal Reserve to jump into action with another rate cut later this month. The central bank already trimmed its base rate by a half-point in September to ease stress in housing and credit markets.
"Odds of a 25 basis-point reduction in the funds rate jumped to 92 percent Friday from 24 percent Monday," said a report from Thomson IFR Markets. "We do not see so much weakness in the domestic economy (especially ex-housing), but the Fed must placate real fears that there are more cadavers in the banking sector and that uncertainty will snatch more from potential growth."
Bond prices rallied in the past week as investors flocked to safety. The yield on the 10-year Treasury bond slid to 4.401 percent from 4.687 percent a week earlier, and that on the 30-year Treasury dropped to 4.689 percent from 4.905 percent. Bond prices and yields move in opposite directions.