What a Week: World of Hurt

The financial sector and banks were particularly weak, as those companies struggled amid subprime meltdown woes and recession fears. After seeming nearly unbreakable for several months, the mighty were falling. Goldman Sachs(GS Quote) lost 9.6%. Merrill Lynch(MER Quote), Bank of America(BAC Quote) and JPMorgan Chase fell 7.7%, 5.4% and 5.6%, respectively.

The bottom was decidedly not in for the subprime mortgage lenders either. Shares of Countrywide Financial(CFC Quote), New Century Financial(NEW Quote) and Accredited Home Lenders(LEND Quote) slid more than 4% each on the week.

Investors looked to economic data to inspire a bounce or fuel more selling. They found germs of worry in several reports and in some of the rhetoric that swirled through Wall Street's corridors.

Ex-Federal Reserve Chairman Alan Greenspan agitated by mentioning the possibility of a recession. Then current Fed Chairman Ben Bernanke soothed by saying that after he watched the recent data, there was no material change to his economic outlook.

The data were mixed.

On the strong side, personal income and spending rose higher than expected, and the Institute for Supply Management's manufacturing index jumped to a 52.3 reading vs. expectations for a flat 50 reading.

But manufacturing and business spending looked exceptionally weak, with a dismal decline of 7.8% in durable goods orders. The Commerce Department also revised fourth-quarter GDP to 2.2% from initial estimates of 3.5%. One of the biggest downward revisions was to business investment spending. The Chicago PMI report, which chronicles manufacturing activity in the Midwest, was weak at 47.5 -- a reading that indicates contraction in the economy.

Perhaps the most disturbing piece of data was the initial jobless claims, which came in higher than expected for the third consecutive week. The four-week moving averages of initial and continuing claims rose to their highest levels since after Hurricane Katrina, in August 2005.

"The longer the uptrend continues, the more likely the move is significant," wrote Joe Lavorgna, chief economist at Deutsche Bank. Lavorgna revised his forecast for payrolls down to 75,000 from the consensus 100,000 estimate.

Indeed, all eyes will be on the payrolls report next week. If unemployment starts to rise, the Fed gets back in the game with a possible rate cut. That may be something traders think they want after such a panic-stricken week, but it surely would accompany a shift to a much weaker economy, which does not actually bode well for profits or stocks in the near term.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting