After Friday's 315-point swoon in the Dow, the hangover for stocks seems as if it could last. Here's a look at what might make this another glum week for American markets:
The tape: In recent weeks, a few bulls had started to cheer up for the first time in months, betting that stocks might be ready to claw their way back from this year's dismal performance so far. But by the middle of last week, hopes that market leadership would shift from a few hot sectors like commodities and energy to the broader market simply didn't materialize. The tech-heavy Nasdaq is now leading major indexes back toward recent lows breached in January.
"You get the story that it'll be different this time. Well, it's looking like it won't. We'll probably drop back [to January lows]," says John Forman, a Thomson equity strategist. Thomson expects the S&P 500 to drop back to about 1250 in the near term, and bullish sentiment is tough to come by.
Asia: Asian markets have plummeted in response to Friday's rout on American exchanges. The Nikkei 225 average finished today down 4.5 percent. Hong Kong's Hang Seng index lost 3.1 percent. Selling continued in the Australian, Indian, and Shanghai markets, too. European markets also look shaky as troubles in the United States threaten earnings abroad.
Credit: This week's U.S. News cover story describes how trouble in the housing market has spread from residential real estate to banks, insurers, and beyond. Now, the mix of the slowing economy and tight credit is spilling into commercial real estate, a smaller but previously healthier sector of the market. According to the Wall Street Journal (subscription required), Goldman Sachs says commercial real-estate values could drop 21 percent to 26 percent in the next two years. That could mean $7.2 billion more in write-downs by the nation's big investment banks this quarter, plus a longer period of tightness in credit markets.
The dollar: The greenback is expected to continue slumping—another bad sign for U.S. equities—on worries that credit problems will persist and on expectations that the Federal Reserve will keep cutting interest rates to battle a slowing economy. The dollar hit a three-year low of 103 against the Japanese yen today as traders moved into less risky currencies. Last week, the dollar slumped to 1.51 against the euro.
"It is bad," says Michael Woolfolk, senior currency strategist at the Bank of New York. "The dollar has further downside potential."