Wild volatility has become such a norm in the stock market that it's impossible to imagine anything but another rocking week ahead.

The Dow this past week lost 4.4 percent, its worst weekly loss in nearly five years. That wiped out the entire 4.39 percent gain made the week earlier, when it had its best week in nearly five years. Meanwhile, the CRB (a key commodities index) made an all time high as wheat and other commodities rose, and the dollar had its best week in eight months. Oil gained more than 4 percent Friday, finishing the week at $91.77.

Wall Street is battling a pervasive fear of more credit troubles, and the idea the economy could be in or headed for recession is rattling stocks. So traders are watching the G-7 meeting in Tokyo over the weekend for any commentary that could impact the dollar. There is also a fairly substantive economic calendar in the week ahead, and Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson speak before the Senate Banking Committee Thursday. There are a few big earnings reports, like GM

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[KO  Loading...      ()   ] and some of Europe's biggest banks.

Here's Why...

If it feels like the rotation of funds in and out of stock sectors is more rapid fire than usual, that's because it is. Or, at least it hasn't been this volatile for sector rotation for five years.

Goldman Sachs U.S. investment strategist David Kostin explains that part of the reason may be the fact that there is a wide divergence in opinion among stock investors about the economy. There are those who believe a recession started late last years, and others that don't see one coming until early next year, and those investors are playing their views in the stock market.

Goldman Sachs' economists believe that the U.S. is headed for a recession now, and that the first and second quarters of the year will be negative. But then they expect the economy will start to grow again in the second half of the year.

Kostin speaks with dozens of buyside managers and says a view he hears from many hedge fund managers, in particular, is that they believe a recession could have started in the fourth quarter, will continue in the first quarter and then the economy will begin to grow again.

He showed us a chart that shows a spike in the volatility of sectors, based on high and low returns, and there is a big run up in January to a level not seen since January, 2003. That would explain why some days we see a big rise in the utilities while the financials are caving, and vice versa.

In the last four recessionary periods, the stock groups that do best from the trough to the end of a recession are financials, information technology and consumer discretionary. The groups that did the best in the beginning of those recessions to the low point, or trough, were utilities, energy and consumer staples.

"I view it as a horizon mismatch. it's a time arbitrage as opposed to a value arbitrage," he said in an interview at Goldman's office this week.

"It's almost to the point where hedge funds have become hyper short term and mutual funds have taken an even longer term view."

In a report this week, he noted that the longer term investor (mutual funds) were more comfortable "looking through an economic downturn" and owning out of favor groups from last year and early t his year. On the other hand, the shorter the view, the more skeptical investors were of the sustainability of a move up in financials and consumer discretionary stocks.

Here's a look at some sector performance this week, and not surprising, much of it was the mirror opposite of the week earlier's action. Of the S&P sectors, financials were down about 8.5 percent this week, about the same they were up the week earlier. Utilities were down 3.2 percent, after a 5.4 percent gain the week before, and consumer staples were down 2 percent, after a 3 percent gain the week earlier. Tech was down nearly 5 percent this past week, after a 2.7 percent gain the week before.

Kostin also shared something else from his many discussions with money managers. The three top questions on the minds of big investors right now are: when is it time to buy financials; what will the trough multiple will be, and is the U.S. economy really decoupling from the world economy. Kostin, by the way, says he thinks it's too soon to buy financials.

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