A Fortune poll revealed that three out of four Americans believe we are either already in a recession now or that we will be in recession sometime this year. With this in the air, following Federal Reserve Chairman Ben Bernanke’s appearance before Congress last week calling for quick action and economic stimulus and the growing concern over the ongoing subprime mortgage debacle as it virally bores its way through the economy, the markets took due note. Friday’s close on the S&P 500 was slightly down again, to 1,325.19, while the Dow was off another 59.91 to 12,099.30, as it threatens to fall through the 12,000 level.
Although Fed. Reserve Chairman Bernanke maintained the economy is not in recession now, he urged action on a stimulus package so the economy would avoid falling into recession. President Bush mentioned possible permanent tax cuts and a spending stimulus package, while Democratic Party opposition leader Sen. Hillary Clinton (D.-NY) took issue with the proposal that she felt would not help “the fifty million Americans who have been hurt the most.” House Speaker Nancy Pelosi said the Democrats would “work with the President,” on the economic stimulus package.
For his part, the Fed Chairman promised the Federal Reserve would “take substantial action,” which the markets interpreted to mean a 50 or 75 basis point cut in the discount rate. This news was nearly greeted with a collective yawn by traders, as it is news that has been quickly priced into the markets, digested, and did nothing to stem the fall of the major index averages.
Traders and investors on both Wall Street and Main Street seem braced for a long battle with chilly economic conditions as the market works down expectations in earnings and stock prices for the foreseeable future. Short sellers, options traders and bears of all manner and stripe may be saying a collective “we told you so” for 2008.
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