The jolt from surging oil prices has ended a summer rally effort and put Wall Street in a precarious situation looking ahead to next month, traditionally the weakest period for the US market.
The major indexes slid to seven-week lows in the week to Friday with crude oil futures holding near record levels.
The Dow Jones Industrial Average slumped 1.53 percent for the week to end Friday at 10,397.29 while the Standard and Poor's 500 broad-market index shed 1.19 percent to 1,205.10. The NASDAQ composite shed 0.69 percent for the week 2,120.77.
The market was roiled by the relentless rise in crude oil prices, which traded as high as US$68 a barrel in New York, raising fears of an energy-induced economic slowdown. Oil futures ended the week at US$66.13 a barrel.
"Oil prices cut chinks in the stock market's armor this past week, raising concerns over the potential damage to economic growth and corporate earnings," said Lynn Reaser, economist at Bank of America.
Stephen Roach, chief economist at Morgan Stanley, said that consumer spending -- two thirds of US economic activity -- cannot hold up in the face of a surge in energy costs.
"In my view, the American consumer is very much at risk in the current oil shock," he said, noting that US households "have drawn their saving rates down to zero," with no cushion for spending as in prior oil shocks.
"Today, the only saving backstop is embedded in an increasingly precarious housing bubble," he said.
The market got mixed news on housing as data showed sales of new US homes jumped 6.5 percent in July to a record pace.
That contrasted with a real estate industry report Tuesday showing a 2.6 percent drop in July existing home sales. Despite the cooling, the total annualized rate of 7.16 million home sales was the third highest level ever, and prices were still growing at a strong pace.
Some analysts said the current turmoil oil Wall Street bodes ill for the market entering the period traditionally the weakest of the year.
"Getting into September, which historically has not been a terrific time of the year for stocks, and when you combine that with the fact that market technicals are weakening somewhat, it looks like the markets are going to continue to struggle over the next few weeks," said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
Bonds firmed on the weaker economic outlook. The yield on the 10-year US Treasury bond fell to 4.189 percent from 4.211 percent a week earlier and that on the 30-year bond to 4.381 percent from 4.421 percent. Bond yields and prices move in opposite directions.
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