Reality hit home with a vengeance on the stock market last week. After the placid spell since November, investors had shrugged off so-so Christmas shop trading and instead dared to dream of a bear-market rally.

I don’t discount the possibility of such a rally, but it has been postponed. The question is how far the retreat is going to be, and what it will tell us about the length and depth of the trough.

One positive — or at least “negative-negative” — note is that the volume of stock-market business is very low. We are not witnessing panic selling of any significance.

Instead, the market-makers are marking down prices. Worryingly, they are not encountering any rush to buy at these levels either.

Confidence was severely dented when Morgan Stanley said HSBC, one of the world’s biggest banks and one that has so far stayed aloof from government rescue money, may have to raise $30 billion (£20.6 billion) and halve its dividend.

One by one, the banks’ status as income stocks is vanishing. Barclays shares fell 14% in a day when it announced another 2,100 job cuts on top of the 700 earlier in the month.

Deutsche Bank said it lost €4.8 billion (£4.3 billion) in the final three months of last year.

British shares fell further on figures showing that American consumers took a far more self-denying approach to last month’s religious festivities and New Year’s Eve than their British counterparts. That is not good for UK banks or exporters.

Across the border in Canada, the giant telecoms equipment group Nortel Networks filed for bankruptcy because firms are holding off renewing or upgrading their present set-up. That sends a chilling message to suppliers of all sorts of widgetry, from central heating to computers.

“Aggregate demand looks weak, feels weak and will probably stay weak for the foreseeable future,” said Philip Isherwood, strategist at Dresdner Kleinwort.

Lord Mandelson, the business secretary, launched a £20 billion scheme to guarantee working capital in small and medium-sized companies, only to be greeted by doubts as to whether that would make banks lend more freely.

And even the cheapest mechanised transport, the bus, is breaking down. First Group shares sank after it admitted that Greyhound, its North American operation, was suffering.

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