After being whipsawed by hurricane jitters and a Federal Reserve interest rate hike, Wall Street may see an improved outlook in the coming week, some analysts say.
The Dow Jones Industrial Average tumbled 2.08 percent in the week to Friday to end at 10,419.59, while the Standard and Poor's 500 broad-market index slumped 1.83 percent to 1,215.29
The tech-heavy Nasdaq composite fell 2.0 percent for the week to close Friday at 2,116.84.
The market was overwhelmed in the past week by the prospect of Hurricane Rita dealing a new blow to the Gulf Coast and oil industry just weeks after the devastation of Katrina, and by disappointment over the Fed's decision to keep raising interest rates.
But some analysts say that if Rita does not produce another catastrophe on the scale of Katrina, the economy may recover fairly quickly and the Fed's upbeat view may be vindicated.
"We have long said that the final weeks of a calendar quarter can be treacherous for the stock market. This is now the case. Hurricane Rita only adds to the difficult conditions," said Dick Green at Briefing.com.
"However, conditions may look a lot brighter in a couple of weeks, depending on exactly what happens with Rita. The good news is that the market may be setting up for a classic earnings season rally. Those frequently start about half way through earnings reports. Unfortunately, that is about four weeks away," he said.
The central bank on Tuesday boosted its main rate by a quarter point to 3.75 percent and said that while Katrina is a tragedy, it will not have a long-term effect on the economy.
Ed Keon at Wachovia Securities said he was pleased with the Fed move even if it disappointed those looking for an easy-money policy.
"There was clearly some political pressure on the Fed to pause because of Hurricane Katrina," Keon said.
"The fact the Fed has stuck to its course in light of that pressure in the long run is a positive for the stock market. So even though the Fed policy has clearly had a short term negative [effect] ... in my view for the long term, this is actually a good thing for the stock market," he said.
Joel Naroff at Naroff Economics was among analysts suggesting that the Fed action is a sign of confidence in the US economy's ability to weather the shock from Katrina.
"The Fed has signaled that the economy should survive the hurricane quite nicely and that when all is said and done, it is inflation that is the real issue," Naroff said.
Still, some analysts remain concerned that Rita may do enough damage to the oil and gas industry to produce another energy shock that damages the economy. Oil futures surged early in the week and then retreated a bit when it appeared Rita would be less damaging than feared.
The benchmark November crude contract rose 1.3 percent for the week.
"The market's near-term direction will depend on Rita's effects," said Lynn Reaser at Bank of America.
"The market's ability to rally will now be held hostage to energy prices," Reaser said.
Bonds saw choppy trading but posted small gains for the week, reflecting continued concerns about a hurricane-induced economic slowdown. The yield on the 10-year US Treasury bond dipped to 4.248 percent from 4.262 percent a week earlier and that on the 30-year bond fell to 5.409 percent from 4.555 percent. Bond yields and prices move in opposite directions.