Bruised and battered Wall Street faces another test in the coming week with more data to highlight dire economic conditions and a Federal Reserve meeting expected to offer a fresh rate cut.
A major question for investors is whether the horrific market action of recent weeks reflects worries of tougher economic conditions ahead or is the result of hedge funds and portfolio managers pulling out cash at any cost to meet redemptions.
In the week to Friday, the Dow Jones Industrial Average slid 5.35 percent to 8,378.95 and is now off a whopping 37 percent so far for 2008.
The broad-market Standard & Poor's 500 index retreated 6.78 percent to 876.77 and the technology-heavy Nasdaq composite plunged 9.3 percent on the week to 1,552.03.
In the coming week, the market will see a grim reminder of the economic woes with the first estimate of U.S. gross domestic product for the third quarter and reports on durable goods orders and consumer confidence.
The Federal Reserve is widely expected to cut key interest rates further at its upcoming two-day meeting, hoping to offer a psychological boost to panic-stricken markets.
Joseph LaVorgna, economist at Deutsche Bank, said he expected a half-point cut that "should embolden some investors to take risk" that would help ailing markets.
"Hopefully, the combination of excess liquidity and government guarantees will encourage investors to extend further out on the money market curve," he said.
John Wilson, equity strategist at Morgan Keegan, said he is advising clients to stay in the market.
"If you sell into this air pocket, I believe you run the risk of being the last seller," he said.
Gina Martin at Wachovia Securities argues the markets are being paralyzed by fear but are also reflecting the economic turmoil.
"We are starting to acknowledge that we are probably going to have the worst recession in the United States in decades, and that is being acknowledged in equity prices," she said.