Markets are taking their cue from the crisis in the world's developing economies, but all eyes are focused on Wall Street. The key question is; are we already in a bear market, or can US equities, and by extension the US economy, weather the storm?
The Dow Jones Industrial Average hovered 9 per cent below its July record by the end of last week, with many professional investors fretting that stocks are headed lower.
Political and economic turmoil around the world is the problem. Latin American bonds plunged on Friday, raising concerns about a global financial meltdown and a big fall in US bank earnings. The dollar surged against the yen, with Japan's banking crisis showed no signs of improving.
There has been a surge in US and European bond markets, seen as a safe haven against the problems in emerging markets as well as a good hedge against a bear market in equities. The rise in the US Treasury market on Friday briefly pushed some bill yields to their lowest levels in over two years as short maturity issues benefited from investors' flight to quality.
"Treasuries are the place to be, and we saw enormous cash flows,'' said Ward McCarthy, managing director of Stone & McCarthy Research Associates, an analytic firm in Princeton, New Jersey. The move into Treasuries was "why the entire yield curve is below the federal funds rate - not because of any likelihood of Fed easing.''
US corporate earnings rose a meagre 3.4 per cent in the second quarter - down from 11 per cent a year ago - as company after company reported that dwindling demand in Asia was undermining their results.
Worse, almost every day securities analysts lower their estimates for third-quarter operating profit growth for the Standard & Poor's 500 Index, according to First Call Corp. Today analysts are forecasting 4.9 per cent growth, down from 5.2 per cent a week ago and 7.3 per cent at the end of July.
Economic growth, housing construction and employment remain robust in the US. Yet many investors forecast trouble. "No one rings a bell when you're in a dramatic slowdown,'' said Jeff Petherick, a Detroit-based money manager with Loomis Sayles, which oversees $70bn (pounds 43bn).
With the stock market falling fast, there is widespread concern that the effect will be a steep decline in US consumer spending. There is evidence that heady Wall Street gains have been used to support a spending binge in the US which could now go into reverse.
Mr Petherick specialises in small companies - the hardest-hit stocks. The benchmark Russell 2000 Index is almost 20 per cent below its April high.
The pain is not limited to companies in the Russell, which have a median market capitalisation of $739m. As of Thursday, the average New York Stock Exchange stock was off 29 per cent from its high, while the typical Nasdaq share was off 39 per cent, according to Salomon Smith Barney equity analyst, Jeffrey Warantz.
"You're seeing the psychology impact stocks more than earnings,'' said Robert Bissell, president and chief investment officer at Wells Capital Management. "People are mesmerised by terrorism and emerging market problems. They don't know what's to come. It's unsettling.''
In another worrying indicator, put/call ratios calculated by the Chicago Board Options Exchange show that investors bought relatively more "put'' options than "call'' options in recent days - the most since 1995, by one measure, and a signal that most speculators are expecting stocks to fall.