Saturday, March 07, 2009

January and February Worst Two Month Period For Performance In History

The S&P 500 index dropped 8.57% in January and declined 10.99% in February. For this two month period the Index fell 18.62% beating the old record decline of 17.85% in 1933. We are 5 trading days into March and the S&P 500 Index is already down 6.97%. The market has a tendency to seek its direction based on a forward looking perspective. If that is the case, the current market contraction is not looking favorably on the next 6-12 months.

In early December I wrote a post comparing the economic environment then to the Great Depression. In that post I noted:
During the early 30's depression, the government responded by decreasing the money supply and raising taxes and tariffs. It would be helpful if the incoming administration strongly stated it would not raise taxes and tariffs as were proposed during the presidential election campaign.
Well contrary to my hopes back then, the current administration in Washington is proposing significant tax increases along with trade protection measures. Additionally, the administration is proposing massive increases in the government's role in the market.

The most recent is the government's desire to offer health care to all. What this will likely do is enable companies to drop health care as a benefit with the assumption employees can apply for a government health plan. Just as social security is unfunded, if government health care is to be fully funded, significant tax increases will be forthcoming. The current policies out of Washington are not pro economic growth.

No wonder the market continues to contract.

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