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It's quite apparent that the stock market is unable sustain any short-term gains because so many institutional investors, from mutual funds to hedge funds, are primed to take profits quickly after a small rally because they're afraid stocks will sink again.

It is one thing to discount stocks for a global recession and a severe economic contraction, but it is another thing altogether when we are confronted with the reality that our worst fears are being realised for the economy and it could get even worse.

Even the technology sector, one of the last redoubts of earnings strength - aside from energy - is showing the strains of worldwide economic contraction, as Intel warned investors it was drastically reducing revenue forecasts and Sun Microsystems announced plans to cut up to 6,000 jobs, in the wake of a US$1.7 billion loss last quarter.

Friday's remarks by Federal Reserve chairman Ben Bernanke at a bankers' conference that the US economy 'is under severe strain',
only served to reinforce the fears of Wall Street investors and economists.

On Friday, it was clear that bear continued to reign supreme on Wall Street. A day after the stock market staged a huge snapback rally, closing more than 6 per cent higher after the Standard & Poor's 500 sank below it's Oct 10 lows in intra-day trading, Wall Street was unable to build on the gains, thanks to a massive sell-off in the final minutes of trading that wiped out most of Thursday's gains.

The Dow Jones Industrial Average closed down 337.94 points, or 3.8 per cent, to 8,497.31. The broader Standard & Poor's 500-stock index was 38 points lower, or 4.1 per cent, to 873.29. The Nasdaq fell 79.85 points, or 5 per cent, to 1,516.85. For the week, the Dow declined 5 per cent while the S&P 500 fell 6.7 per cent.

In the coming week there is likely to be more bad news coming from the economic data. Today will be industrial production and capacity utilisation figures for October, and the release of a November manufacturing report from the New York region, the Empire State Index.

Tomorrow, the October producer price index will be released, to be followed by the consumer price index on Wednesday. Normally, investors focus on those two reports for their inflationary implications. But these are not normal times, and now the big question is whether deflation has struck the economy. Also on Wednesday, data on housing starts for October will be released, along with the minutes of the Fed's last meeting.