Mixed signals on the economy and interest rates and worries about the impact of credit and housing woes on the finance sector has put Wall Street on the defensive heading into the year-end season.
While the market heads into a holiday season that is traditionally positive for stocks, analysts say the murky outlook could make further gains difficult.
In the week to Friday, the Dow Jones Industrial Average of blue chips dropped 1.5 percent to 13,595.10. The broad market Standard & Poor's 500 index shed 1.67 percent for the week to 1,509.65, while the tech-heavy NASDAQ managed a gain of 0.22 percent to 2,810.38.
The Dow is up 9.1 percent for the year, with the S&P 500 gaining 6.4 percent and NASDAQ adding 16.4 percent.
Over the past week, the market got what appeared to be positive news, but seemed cautious on the future outlook.
The US Federal Reserve cut its base rate by a quarter-point to 4.5 percent, in line with market expectations, to head off what appears to be a softening of economic conditions.
At the same time, data showed the US economy expanded at a robust 3.9 percent pace in the July-September quarter, shaking off credit and housing market turmoil.
And another report showed a robust gain of 166,000 new jobs last month to start off the fourth quarter with a positive tone.
Still, the market seemed to waver on the Fed move, especially its statement suggesting that the risks on inflation and weaker growth are roughly equal.
"Unfortunately, this week's Fed statement inferred that it is through cutting interest rates," said Peter Morici, economist at the University of Maryland.
"This only served to further destabilize credit, stock and housing markets, and negate the potential positive effects of its quarter-point reduction in the federal funds rate."
Fred Dickson, market strategist at DA Davidson & Co, said Wall Street is looking ahead at a potentially bleak holiday season and are worried about high food and energy prices.
Bonds benefited from investor caution. The yield on the 10-year Treasury bond fell to 4.291 percent from 4.389 percent a week earlier.
The yield on the 30-year Treasury dipped to 4.595 percent from 4.683 percent.
Bond prices and yields move in opposite directions.