A scary drop in stocks and commodities threatens to squeeze life out of an already faltering U.S. economy, with deal-making, investment in plants and equipment, and capital raising at risk of slowing down or freezing up.
This will likely further damage consumer confidence, already jarred by the toxic battle in Congress over the government's debt ceiling and by high unemployment, and feed fears another recession is just around the corner.
Such market declines can create a vicious circle, where falling values in retirement and mutual funds hurt investors' confidence and reduces their spending activity - in turn feeding into decisions by businesses to delay or cancel plans as the outlook for sales and profits dims.
On Thursday, Wall Street suffered its worst sell-off since early 2009 when the financial crisis was still taking a big toll, while crude oil declined as much as 6 percent. The S&P 500 has now declined 10.7 percent in the past 10 trading days.
Behind the panicky slide are fears the United States is staring at another recession following a series of ugly economic figures in the past week, and concerns Europe's sovereign debt crisis is worsening as it spreads to Italy and threatens the existence of the euro zone in its current form.
Investor sentiment has also been hammered by a lack of clear political leadership in both Europe and in Washington, and concern that governments and central banks are running out of fiscal and monetary ammunition to deal with the crises.
As a result there has been a rush to the relative safety of cash, leading to the possibility of an increasing paralysis in spending decisions throughout the economy.
"The market is taking everything down, and that's causing people to pause, which will affect all businesses," said Kent Gasaway, a portfolio manager with the Buffalo Funds in Kansas City.
Here are some of the areas of the economy that are likely to suffer the biggest initial stresses from the slide in markets.
U.S. consumer sentiment had already fallen in July to its lowest in more than two years on deepening concerns about stagnant wages and rising unemployment, and could now deteriorate further.
The Thomson Reuters/University of Michigan's final reading on the overall index of consumer sentiment, released last Friday, came in at 63.7, down from 71.5 in June and the lowest reading since March 2009.
"It is possible that this will push it down even further," said Richard Curtin, director of the Thomson Reuters/University of Michigan surveys of consumers.
He said that people look at the stock market as an indicator of how the economy will perform in the future.
"If you don't have stock and you think the stock market is a predictor of the future economy, you'll tend to pull back in spending and prepare for a worse economy."
There would also be a direct, though lesser impact, from those who spend less because their stock market investments in pension and other funds have declined, Curtin said.
"I think most consumers think now that the government can't do very much either in monetary or fiscal policy. They would rather have the government be more activist and avoid a potential downturn."
Billionaire investor Wilbur Ross noted that in the financial crisis and its aftermath "consumers' balance sheets have lost around $7 trillion of net worth, trillion with a big "T" - that's a lot."
"We never had the consumer bashed this badly as happened during this past recession," he told Reuters Insider on Thursday.
Capital investment had been one of the few relatively bright spots in the U.S. economy, rising 21 percent in the first quarter and keeping up a similar pace in the second quarter, according to a Reuters study of more than 3,000 companies.
But declining business and consumer confidence, exacerbated by the stock market plunge, could lead to a pullback. Many companies are also likely to continue to invest more in fast growing markets like China in preference to the U.S. under those circumstances.
"It's awfully hard to make long-term spending decisions in an environment that's as uncertain as this one, and I believe executives will be very circumspect about their long-term spending plans as they become more focused on defensive measures and keep their powder dry," said David Joy, chief market strategist at Ameriprise Financial, where he helps oversee $571 billion in assets under management.
A number of industrial companies, including Emerson Electric Co (EMR.N) and 3M Co (MMM.N), have announced plans to either curb spending or have shifted priorities to foreign markets.
Emerson's CEO David Farr is already looking for ways to limit the St. Louis-based company's spending. Rather than planning to boost its budget by 5 percent next year, Farr now aims to increase outlays by just 3 to 4 percent.
"People are still very reluctant to make long-term commitments to R&D and capital because of the uncertainty," he told reporters at an industry conference on Wednesday.
MERGERS & ACQUISITIONS
With stocks plummeting and credit markets getting roiled, bankers say dealmaking is feeling the chill.
Falling share prices could put even agreed deals in danger of unraveling, especially when stock is a big portion of the consideration.
"The debt ceiling crisis has created uncertainty in the credit markets and to a large degree the M&A market is moored to the credit markets," said Eric Greenberg, an M&A partner at law firm Paul Hastings. "You are seeing some new uncertainty at least for the short-term."
Some deals may get renegotiated if they are in danger of collapsing.
Healthcare IT provider Emdeon Inc's (EM.N) talks to sell itself for $3 billion to private equity giant Blackstone Group (BX.N) went cold last week because of difficulty in raising funds for the buyout, a source familiar with the situation said. The two sides, however, managed to strike a deal on Thursday after re-pricing the debt, the source said.
U.S.-based payment processor Fidelity National Information Services (FIS.N) dropped plans to buy British software company Misys on Thursday and said it would instead buy back shares.
The reasons for talks falling apart are not clear, but Misys said it rejected the deal, which would have valued it around $2.4 billion, because it undervalued the company.
But so far dealmakers say most agreed deals appear to be holding up. More than 36 percent of U.S. deals so far this year have been all cash and only 9.1 percent are leveraged buyouts, according to Thomson Reuters data.
Strategic buyers who are using cash on their balance sheet to buy rivals rather than raising debt are less likely to pull out of a deal. Contracts have also become tighter, making it more difficult for companies to pull out.
And Greenberg said he is still optimistic that top-notch deals will still get done.