Are Stocks About to Repeat Their Summer Horror Show?

Like the third sequel to a summer horror movie, stocks are set up for another summer selloff amid fears that the U.S. economy will slide back into recession.

Source: Dimension Films

Scream 3

In the last two summers, the final nail in the equities coffin, the thing that pushed it was a double dip scare. We do think the market is going to increase expectations of that in the coming week, said Barry Knapp, head of U.S. equity portfolio strategy at Barclays.

Stocks are already down about 10 percent from the years highs, and analysts expect the choppy trading to continue, now that the May jobs report Friday confirmed the economy is slowing. The dismal report, showing just 69,000 jobs created, also sparked instant speculation that the Federal Reserve will come to the rescue with another round of easing .

That puts the focus in the week ahead squarely on the Fed, and a series of Fed speeches, the most important of which is testimony from Fed Chairman Ben Bernanke before the Joint Economic Committee Thursday.

Theres no question the economy is still struggling and still struggling a lot Im starting to fear summer," said Diane Swonk, chief economist at Mesirow Financial. "I remember a time when I was a kid and I liked summer. Its now gotten to where in the last five years, summer is the time everybody falls apart, and weve gotten into the pattern, particularly in the last three years where we start out optimistic about the economy and then it falls apart, she said.

Fridays market selloff made for the worst start to the month of June for stocks in a decade, with the Dow down 2.2 percent and the S&P 500 down 2.5 percent. Traders were also quick to question whether this year, like the past two, will see stocks make their highs for the year in the spring, before a summer swoon. For the week, the Dow lost 2.7 percent to 12,118, and the S&P 500 was down 3 percent at 1278, while Nasdaq was down 3.2 percent at 2747.

Knapp said stocks could be in for a rough summer, with the S&P dipping to 1200 if not lower. Though he doesn't expect a full-on recession.

Youre going to have a big-time global growth scare, and it would take a big policy response to change the markets mood about that, and thats not coming next week," Knapp said. "I think in the next week, the downdraft in the market will be interrupted only by rumors of policy intervention.

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Are Stocks About to Repeat Their Summer Horror Show?