Unsurprisingly the battered banking sector has borne the brunt of market losses, with HBOS losing 90.3% of its value, and RBS not far behind, shedding 86.7%.

In the first week of 2009 the FTSE 100 was proving remarkably resilient.

The newspapers could not be filled with more bad news, firm after firm going to the wall and no indication of the situation improving.

It seems illogical that the market put on nearly 10% in the last days of 2008 and start of 2009. Surely it should have plummeted to new depths?

However, it appears that there is an appetite for equities at the moment as investors look to put their money somewhere, rather than putting it in cash and earning a meagre 1%.

Nevertheless, now comes the risk warning. Whilst last year's decline in equities may look to many to be an absolute bargain, the risk is that the market has not priced in worse things to come.

With figures from the Bank of England showing non-financial UK companies having less cash on deposit than any time since the early 1990s, once their cash flow completely runs dry there will not be any banks or white knights to come to their rescue. The next action to take will have to be aggressive cost cutting in the form of jobs.

It is unemployment that is one of the biggest threats to any full blown recovery and if this is worse than investors had predicted we could see the market hit the 3,000s before the 5,000s.

On top of this, things are not getting any better for the housing market after Nationwide reported that last year saw the biggest annual fall in house prices since records began in 1991. On top of this, consumer confidence reached new depths falling from 50 to 47. Only a few months ago the reading was 100.

So where to put your money? Looking at the recent bounce the important thing to note is that despite the broader index's rise, some stocks have performed spectacularly poorly and one in particular is Lloyds who's shares were one of the biggest fallers in the new year.

As Simon Denham of recently commented, ?As the index has rallied you would expect it to be driven largely by the good old blue chips, but since this has not been the case it makes stock picking all the more important. Time and time again we hear comments such as ?picking your stocks carefully will be of paramount importance throughout 2009? and at the moment you can see why.?

Whilst there maybe many a bargain out there, investors should tread carefully and look for companies with solid balance sheets if they want to buy some shares.

Further indications of light at the end of the tunnel are how some stocks are moving in a counter intuitive way. Take the retailers for example. They have had a dire last few months and many of them look to be staring down the barrel, but some posted big gains at the beginning of 2009.

Often fund managers who call themselves contrarian are incredibly successful with their strategy and it would seem that a lot of these contrarian investors believe it is now time for retail stocks to recover since everything about them seems to be disastrous.

A warning though, spread bets carry a high level of risk to your money and may not suit all forms of investor. You can lose more than your initial investment so make sure you only speculate with capital that you can afford to lose. Likewise make sure you understand the risks involved and seek independent financial advice where necessary.