The U.S. stock market fell for a third straight week, but is down just 2.2% from its late-April peak. That’s too shallow to even be called a correction. So why do things feel so much worse than they are?

Maybe it’s because the easy, dominant trade of the past eight months—selling low-yielding dollars to buy rallying commodities—has vanished now that the dollar has strengthened, and commodity exchanges are raising margin requirements to cool speculation. Sectors that have led the market—like energy and industrials—are faltering, and the lack of leadership adds to the creeping bewilderment and stocks’ desultory flip-flopping.

Nearly everyone has grown more circumspect. The pace of economic growth seems to be slowing. Energy and raw-material costs have risen. Our central bank’s heroic scheme to buy Treasuries to prop up the markets will end in June. Greece may not be able to pay its loans and may need to restructure its government debt, while China is tightening credit to fight inflation and cool its economy. Perhaps fatigued by such familiar fears, investors seemed more willing to fling themselves at fresher risks they don’t yet know, and the newly public shares of the social-networking site LinkedIn (LNKD) jumped 109% on its debut.

The latest survey of global fund managers by BofA Merrill Lynch showed how swiftly conviction has evaporated. Only a net 10% of respondents see stronger global economic growth over the next 12 months, down from 58% as recently as February. Alas, weakening economic momentum may not ease inflationary prices, most likely because it will give our central bank another excuse to keep printing money longer. The cadre of money managers fretting about higher inflation declined only slightly, to 61% in the latest survey from 75% in March, while an increasing majority now expects the Federal Reserve to defer raising interest rates until at least 2012.

The troubling thing about such an apprehensive crowd, and stocks still perched near the highest levels in years, is how the slightest excuse could trigger a further flight from risk. On Friday, Fitch slashed Greece’s credit ratings by three notches and set off a retreat from government bonds of peripheral euro-zone countries, but U.S. stocks fell just 0.8%. But eventually, and this could take a while, lower expectations will make it easier for even our sluggish economy to surprise and appease investors.

Thomas Lee, JPMorgan’s U.S. equity strategist, thinks downside risk from the end of the Fed’s second quantitative easing could prove more limited than feared. During the first quantitative-easing campaign, or QE1, Standard & Poor’s 500 companies had seen their dividends shrivel 24% while per-share profits fell 12%. Corporations are on firmer footing now, and dividends have grown 12% since the Fed signaled QE2’s start, with earnings up 13%.

The Dow industrials fell for a third straight week, ending the week down 84, or 0.7%, to 12,512. While this pullback has been shallow so far, the three-week slide marks its longest since late August—incidentally just before the Fed breathed new life into risky assets. The Nasdaq Composite Index fell 25, or 0.9%, to 2803, while the Russell 2000 slipped 7, or 0.8%, to 829 (Source: Barrons Online).