Reply #2: Today's Market WrapUp: A "Head and Shoulders" Top for the Dow Jones Industrials? [View All]

Let’s say the US economy goes into a deeper than expected slide and gets slammed with a nasty recession, S&P 500 profits shrivel up, and banks get hit with hundreds of billions in losses from sub-prime debt. The combined effects of the housing slump, the credit crunch, a spike in mortgage foreclosures, and crude oil bumping against $100 /barrel, appears to have sharply slowed US economic growth in the final months of 2007, raising the odds of a recession in the first half of 2008.



The closely watched ISM factory index for December slumped to 47.7, the lowest since April 2003. A reading below 50 indicates a contraction of activity. The ISM’s new orders measure fell to 45.7 from 52.6, and the employment index was below 50 for a second month. The ISM factory report added to recession fears, and crude oil’s brush with $100 a barrel knocked the Dow Jones Industrial Average down 1.7% towards the 13,000 level on the first day of trading in 2008, a bearish omen.

On average, the S&P 500 index lost 26% of its value, during the past 11 recessions since 1945. Recessions usually occur every 5.5 years, and the last recession was in 2002. What then for the roughly 80 million US stock market operators? Does a US economic recession translate into a weaker stock market? Can the US Treasury’s “Plunge Protection Team” put a safety net under the stock market with government intervention and massive injections of cash from the Bernanke Fed?



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