United States Economy & The Stock Market

Abstract

<p class="MsoBlockText" style="text-align: justify; line-height: normal; margin: 0in 0.5in 0pt; mso-pagination: none;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Is this a new economy?<span style="mso-spacerun: yes;">  </span>Inflation and interest rates are low.<span style="mso-spacerun: yes;">  </span>Compared to previous recessions, unemployment rates are also low but productivity is growing at a healthy pace.<span style="mso-spacerun: yes;">  </span>For the first time since the 1920s stock markets have been falling during the first few months of an economic recovery.<span style="mso-spacerun: yes;">  </span>The U.S. stockholders wealth has been reduced by approximately $8.0 trillion between March 24, 2000 and October 9, 2002.<span style="mso-spacerun: yes;">  </span>Information technology and telecommunication sectors have lost more than 50 percent of their market value.<span style="mso-spacerun: yes;">  </span>The U.S. consumer has so far shrugged off the bursting of technology bubble.<span style="mso-spacerun: yes;">  </span>However, the real estate sector is forming a bubble in some areas now.<span style="mso-spacerun: yes;">  </span>Of late, the enthusiastic American consumer has shown signs of fatigue in the face of corporate scandals, higher trade deficits and resurfacing of federal deficits.<span style="mso-spacerun: yes;">  </span>This essay finds that the current bear market is similar to the 1929-1934 bear market in many respects.<span style="mso-spacerun: yes;">  </span>An important difference between the current market and 1929-1934 period is the participation rate and the presence of defined contribution as well as defined benefit plans.</span></span></p>