Monday, December 21, 2009

Worse Than The Great Depression?

It is possible the U.S. stock market is less than two weeks away from closing out its worst decade ever.

Since reliable stock market records began in the 1820s, the market has only endured one decade where it lost money -- the 1930s during the Great Depression. From the beginning of 1930 to the end of 1939, the stock market earned -0.2% annually. Currently, the U.S. market is on pace to suffer a -.05% annualized return during the '00s. Consequently, William Goetzmann of Yale University estimates it would take a 3.6% rise between now and year end for the decade to come in better than the 0.2% annualized decline suffered during the Depression.

However, this race isn't over yet. In fact, the market is up approximately 1.15% as I write this article. Additionally, on Tuesday the government will release its report on third-quarter gross domestic product, which has been expected to show that the economy expanded at an annualized rate of nearly 3%. GDP figures meeting or exceeding that figure could provide an additional bump. Further, both J.P Morgan Chase and Credit Suisse Group economist recently boosted fourth-quarter growth estimates to 4.5% from 3.5%.

Considering these factors, whether the abysmal last decade turns out to be the worst 10-year period for investments remains to be seen.

On a side note, if GDP figures continue to impress, the Fed may be forced to raise interest rates sooner than expected. In fact, many expert predict that GDP figures of 4.5% would lead the Fed to boost rates as soon as June.

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