The economic news is still bad, with unemployment up, retail sales down, and manufacturing activity very weak. Still, despite all the negativity, things haven’t yet gotten as bad as they were during past major downturns, such as 1973-74 and 1982-83. On the bright side, the LIBOR has been dropping, though banks still aren’t doing a whole lot of lending to each other. And the Treasury Department is now backtracking on its plans to buy up troubled loans, instead pushing to shore up banks’ balance sheets and consumer credit.
The U.S. also has a new president-elect, and while Barack Obama is a Democrat who has some plans for major government programs, that doesn’t mean bad news for stocks. History shows that the party in power hasn’t mattered to stocks as much as other factors; in fact, more recently, Democratic administrations have presided over much better stock performance than Republicans.
Also, while we keep hearing about how “unprecedented” our current situation is, the stock market headlines back in mid- to late-2002 — shortly before the end of our last bear market — were just as bleak. That doesn’t mean the market is going to turnaround next week or even next month, but it does show that we’ve been through extreme fear-filled periods before, and each time the market and the economy have recovered despite the major crises they’ve faced. This time will be no different.