Stocks Set For More Weakness Next Week; Retailers In Focus

Stocks are poised for more weakness next week, after a slide in the Nasdaq wiped out hopes that technology shares could pull the market out of the subprime pain felt by financial institutions on Wall Street.

"Tech had been the big winner since the August sell-off," said Paul Nolte, director of investments at Hinsdale Associates. "In any type of correction, you're likely to take money out of where you've done well."

Stocks experienced another slide on Friday, with the Dow Jones Industrial Average (DJI) finishing off 223 points at 13,042, capping a week of pain that shaved 4.1% from the blue chip index.

"We've had a confluence of worries about the dollar, energy prices and subprime problems that's really got investors nervous and they don't want to be hanging around the equity market," said Nolte.

Hit by continued weakness among financial stocks, the broad S&P 500 index ( SPX) lost 21 points to 1,453, adding up to a 3.7% drop on the week.

Yet most of the bleeding was seen in the tech-heavy Nasdaq Composite (RIXF) , which fell 2.5% to 2,627 on Friday. For the week, the Nasdaq shed a breathtaking 6.5%.

Retail highlights week

Next week, the market will turn to the September pending home sales index on Tuesday, October retail sales on Wednesday, and regional manufacturing survey for November on Thursday, for the latest snapshots on the U.S. economy.

"The business surveys will help us figure out who's getting really hurt by the whole housing collapse and who's benefiting from a weak dollar and overseas growth," said Sal Guatieri, senior economist at BMO Capital Markets.

Helping take the pulse of U.S. and global consumers, Wal-Mart Stores (WMT) and Home Depot Inc. (HD) will also report earnings on Tuesday, followed by JC Penney (JCP) on Thursday.

Bad economic data may lift market odds that more rate cuts from the Fed are on the way, although Fed chief Ben Bernanke's uncertainty last week in testimony to Congress left some investors concerned.

"Back in August, we had the whole financial crisis leading up to the Fed cutting rates and then we were off to the races," said Hinsdale's Nolte. "Now we need another event like that" if the market is going to pull itself up, he said.

Inflation data -- the October producer price index on Wednesday and the consumer price index on Thursday -- might hold back hopes about further rate cuts.

Tech wreck 2.0

The selling that plagued the financial sector of the market for the last two months formally spread to the rest of the market on this past Thursday. That's when tech shares began selling off in earnest upon a lower-than-expected revenue forecast from industry giant Cisco Systems (CSCO) , which fueled worries that corporate spending on technology products going into next year.

"Cisco triggered it when they said that business spending was going down," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "Starting with financials, can we imagine the likes of Bear Stearns, Citibank, Wachovia and others spending a lot of money on IT next year?"

A litany of financial companies continued to reveal the pain inflicted on their books by bad home loans made during the heydays of the housing bubble. Just on Friday, more woes were either announced or speculated on not only at U.S. banks Wachovia (WB) and State Street (STT) , insurance giant AIG (AIG) and Wall Street firm Morgan Stanley (MS) , but also at the UK's Barclays and Canada's CIBC.

Financial woes and the housing market are only piling up concerns about the U.S. economy going forward, as was expressed by Federal Reserve Chairman Ben Bernanke on Wednesday.

Market bets that the Fed will be further cutting interest rates to boost the economy increased over the past week, leading the U.S. dollar to slump to new record lows against the euro and to slide further against other major rivals.

On the positive side, a slumping dollar is helping boost exports, notably for U.S. technology companies which sell a large part of their products overseas and repatriate profits which then benefit from currency translation.

"The likes of Cisco and Microsoft (MSFT) , who make so much money overseas, can benefit from a weaker dollar, but the rest of the story is still linked to the economy," Windham's Mendelsohn said.

On Tuesday, semiconductor equipment-maker Applied Materials (AMAT) will report earnings, providing another insight into how tech stocks are faring.

But "the rotation that was taking place out of financial stocks and into technology has stopped dead," Mendelsohn said. "Now, the rotation is money is getting out of the market altogether and going into government bonds."

Amid broad-based concerns about the financial sector and the economy, investors sought the safety of bonds, sending their yields, which move inversely to price, sharply lower. The yield of the (TNX) benchmark 10-year Treasury bond fell to a 2-year low.

With the dollar slumping, commodities and especially crude oil, continued to soar to record levels, with a barrel of oil now fast approaching the $100 mark.

"Right now, we haven't reached a bottom yet. A lot of people are still taking risk," Nolte said. "When that happens, you want to be on the other side of the ship."