NEW YORK — 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 another recession.
“I’m nervous that fear will lead companies to stop hiring and people to stop spending,” said Jim Paulsen, chief investment strategist of Wells Capital Management, famous for his usually bullish take on the markets.
A home-sales report last 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 another big plunge in stocks could “push us closer to the brink.”
The Standard & Poor’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. Growth, at an annual rate of 0.8 percent, was the slowest since the recession ended in June 2009. The economic weakness has made investors more likely to sell stocks at the first hint that things are getting worse.
“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. He said the housing market will languish until buyers and sellers feel more secure about the economy.
“People are really motivated by larger economic trends. It’s all about if you feel confident enough to buy a home right now,” he said.
Some Wall Street analysts say reports of trouble were exaggerated, but that didn’t seem to matter. For investors, the prospect of banks scrambling for cash dredged up bad memories of the global credit freeze that hit in the fall of 2008 — and they sold stocks.
“A negative feedback loop … appears to be in the making,” two economists at Morgan Stanley wrote Thursday in a widely cited report that itself seemed to beget more fear and selling. It warned that the U.S. was “dangerously close” to recession.
Investors will be on edge this week as they scrutinize new data on the economy. On Tuesday, new home sales for July are released, followed Thursday by a weekly report on how many people are joining the unemployment line. On Friday, the government will give its second estimate of how fast the economy grew from April through June.
The most anticipated event, though, is a speech the same day by Federal Reserve Chairman Ben S. Bernanke at a retreat in Jackson Hole, Wyo., sponsored by the Federal Reserve Bank of Kansas City.
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