United States Economy & The Stock Market

Abstract

Is this a new economy? Inflation and interest rates are low. Compared to previous recessions, unemployment rates are also low but productivity is growing at a healthy pace. For the first time since the 1920s stock markets have been falling during the first few months of an economic recovery. The U.S. stockholders wealth has been reduced by approximately $8.0 trillion between March 24, 2000 and October 9, 2002. Information technology and telecommunication sectors have lost more than 50 percent of their market value. The U.S. consumer has so far shrugged off the bursting of technology bubble. However, the real estate sector is forming a bubble in some areas now. 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. This essay finds that the current bear market is similar to the 1929-1934 bear market in many respects. 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.