The National Bureau of Economic Research (NBER) validated on Monday that the economic expansion which started in November 2001 had ended, and the U.S. had entered a recession as of December 2007.  This announcement followed evidence of slow retail sales over the Thanksgiving weekend (despite an increase in sales on Black Friday), and sent Wall Street and global markets plummeting in the stock market’s final hours, eliminating more than half the gains of the previous week. 

Regardless of the verification of a recession by the NBER; didn’t the events of Monday seem a mere confirmation of what we all knew?  President Bush spent a significant portion of the last year and a half making unconvincing arguments that the U.S. had not entered a recession.  In October we recognized that our situation was dire, and the word recession was no longer restricted to tight political circles.  The entire population knew that the U.S. had fallen on hard times, and that it would take a collaborative effort to deal with the economic downturn.  Does it make sense then that the stock market panics at the mention of recession, a word that has been tossed about for months amongst both the public and the politicians?  It makes no sense.  Senate Majority Leader Harry Reid said in a statement he issued after the NBER’s announcement:

The announcement simply makes official what we have long known – with the rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet.

From the outside looking in the stock market appears to possess the mannerisms of a toddler with a diminutive memory, a fear of its own shadow, and a fondness for peek-a-boo. 

Monday was a clear indication of the market’s short recollection as it had trouble remembering the promise of future growth amidst turmoil from the previous week; in fact the only unexpected occurrence over the weekend was that sales increased 3% from the previous year on Black Friday.  More than external factors, it seems that the market panics when it catches a glimpse of its own shadow, realizing that the Dow Jones has been near halved from its zenith in 2007.  In addition to all of this, the market likes to play peek-a-boo with investors, covering its eyes from time to time as positive information manifests, only to open its eyes and resume panic induced by the few sour bits of information that follow. 

It might appear that the market is fueled on blind hope that is built up and then crushed through a constant battering of unfortunate economic events.  But for each significant blemish in recent months, the government has countered with a solution (often a stimulus plan).  You’d think by now investors would have learned to mellow out about the depressing economic developments that seem to materialize daily.  Economists have predicted that in the first half of 2009 the market will tighten, followed by moderate growth in the second half.  With genuine hope for future growth, the amount of volatility in the stock market seems all the more absurd.   

Monday marked the fourth worst drop ever for the Dow Jones, at just under 680 points or about 7.2%.  Market analysts stated that during normal times, the Dow might gain what it had the previous week, about 1300 points, in two solid years, so a pullback was expected, but not to the extent that Monday yielded. 

House of Representatives Speaker Nancy Pelosi met with governors on Monday to discuss the size and shape of another economic stimulus package, rumored to cost around $500 billion.  This stimulus package wouldn’t be used to provide aid so much as to create modern jobs focused in the environmental sector.  The controversial $700 billion stimulus package passed in October was intended to provide aid to the public, but there has been much speculation as to whether it is being best utilized by the Bush administration. 

Regardless of the size and distribution of the stimulus, the promise of government aid has been a key factor in combating the constant market fluctuations.  In a recent interview, President Bush stated:

The economy will recover.  And when it recovers, many of the assets backed by the government now will be redeemed and we will – could conceivably – make money off of some of the holdings.

Whether you care to believe President Bush or not, it’s reassuring that some government investments have at least a chance of yielding monetary gain.

Tuesday the stock market fluctuated but ended on a positive note, with a gain of about 270 points or 3.3%.  Optimistic news from Ford Motor Co. and General Electric Co. calmed the market at the close despite losses earlier in the afternoon.  Investors continued to remain wary with the sharp decline Monday on Wall Street, and the omnipresent R-word looming in the periphery.

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