The stock market is starting to feed economic fear, not just reflect it.
Stocks have fallen four weeks in a row. Some on Wall Street worry that the resulting blow to confidence, not to mention 401(k) statements, has set off a spiral of fear that could push prices even lower, cause people and businesses to pull back and tip the economy into a new recession.
"I'm nervous that fear will lead companies to stop hiring and people to stop spending," said Jim Paulsen of Wells Capital Management, famous for his usually bullish take on the markets.
A home sales report this past week showed that more sales than usual fell apart at the last minute, which suggests plunging stocks and dismal economic news gave buyers cold feet. At least 16 percent of deals were canceled ahead of closings last month, four times the rate in May.
Beth Ann Bovino, senior economist at Standard & Poor's, said that another big plunge in stocks could "push us closer to the brink." The S&P's 500 stock index ended Friday at 1,123.53, down 5 percent for the week. The average is down 16 percent during the four-week losing streak.
One reason for the drop is fear that another recession, if not certain, is more likely now.
The run of bad economic news started last month when the government said the economy grew much more weakly in the first half of this year than thought. The economic weakness has made investors more likely to sell stocks at the first hint that things are getting worse. And last week, they got signs aplenty.
A regional survey by the Federal Reserve said manufacturing had slowed in the mid-Atlantic states by the most in more than two years.
"What you're seeing with the economy, on the job front -- it's scaring a lot of people," said Brian Fine, a loan manager at Mortgage Master in Rockville, Md. He said the housing market will languish until buyers and sellers feel more secure about the economy.
Some analysts say reports of trouble were exaggerated, but that didn't seem to matter. For investors, the prospect of banks in Europe scrambling for cash dredged up bad memories of the global credit freeze of 2008 -- and they sold stocks.