Are We Already in a Recession and Just Don’t Know It?

Another brutal day on Wall Street. After Friday’s rebound, stocks returned to the intense selling that has been the norm for November. Further fears in the credit markets sent the S&P 500 down 32 points, or 2.32%, and the Dow Jones Industrial Average down 237 points, or 1.83%. It was yet another tough day on Wall Street. This bad period for stocks started just twenty-five days ago on November 1st and it is already down 9% since that time period.

A look at stock prices can give us a real good perspective at how things are in economy. Stock prices are typically a good predictor of things to come.

Financial stocks are reflective of the big problems that we are facing in the credit markets. Citigroup, Merrill Lynch, and Bear Sterns are all close to a 50% decline from their 2007 stock market highs.

If you take a look at retail, it doesn’t get much better. Wal-Mart, a good overall barometer for consumer spending, is down levels not seen since October of 1999. If you were invested in that stock, you would be at the same stock price now that you were eight years ago.

I wrote about retail sales yesterday in my blog and on my stock market outlook because this will give us a very good indication of the health of the consumer. For the most part, retail sales were stronger this year than last year on Black Friday. However, much of this was due to the aggressive marketing of midnight sales and the fact that retailers were practically giving merchandize away.

Retailers have figured out that to get the consumer in the door you have to slash prices. The problem is that retailers cannot afford to continue to sell merchandise at these levels for the next thirty days. Wall Street is dependent upon consumer spending to keep this economy going.

So, taking a look at the housing market, consumer debt, high energy prices, lay-offs, and slowing wage growth, it begs one to ask the question: “Are we already in a recession?” If not, I think that we are getting ever so close to one. If we are, market investors need to take a look at their portfolios and consider battening down the hatches. The stock market does not do well in recessions. The average loss in a recession is over 30%.

So how do you respond? Make sure you review my article on the 3 ways of investing. The bottom line is to have a game plan and know your risk.

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