US stocks rallied 24% between the low set November 20th and January 6th. However, the release of universally dismal economic reports in the United States dropped stocks over 11%, leaving the S&P 500 down 7.4% on the year, and down 47.0% from the record high set in October 2007. This chart of the S&P 500 since 1928 shows the violence of the current market. At the far left, we see the 80% declines of the Great Depression. At the far right, we see two major sell-offs - the first in 2000-2002 with the bursting of the tech bubble, and the second from 2007-present with the bursting of the credit bubble. The 1987 stock market crash is minor by comparison. We see that US stocks are net unchanged from 2003 and before that from 1997. Between 1965 and 1978, US stocks were also stuck in a range. Following the conclusion of the 1982 recession, stocks rallied for the next two decades.
The first estimate of 4th quarter US GDP showed a decline of 3.8% versus expectations of a decline of 5.5%. These growth figures are the worst since a decline of 6.4% in 1982. The first estimate includes minimal data from December, however, so we would expect lower revisions in the February and March estimates. Soaring layoffs and jobless claims, and a rising unemployment rate bode ill for subsequent quarters, with GDP growth estimate at -3.0% for Q1, -0.8% for Q2, 1.1% for Q3 and 2.0% for Q4. Unemployment, which usually trails economic growth, is expected to peak between 8-9% towards the end of 2009. Considering that the US economy appeared to be on the mend as recently as August 2008, we're shocked at how dramatically the US and world economies have slowed. In particular, we're astonished that the major interventions by the US Federal Reserve and Treasury, and by central banks worldwide, have had little or no effect on the continuing collapse of the world's banking systems.