Earn What You Spend

It’s been a rough day in the markets: 

U.S. stocks slid, sending the market to its biggest two-day loss since 1987, after jobless claims jumped and the shrinking economy crushed earnings at companies from Blackstone Group Inc. to News Corp.

Why?  A number of reports from a number of retailers about their same-day sales in October were disconcerting. From the WSJ:

Considering that consumer activity constitutes more than two-thirds of the overall U.S. economy (emphasis mine), continued weakness in purchases of everything from televisions to t-shirts could deepen the recession that most economists believe is already underway. Many stock investors have lingered on the sidelines lately, waiting for more clarity about whether things will get much worse.

This affected virtually every retailer besides Wal-Mart, whose discount prices are seen as a boon in a recession:

Thomson Reuters said its same-store-sales index fell 0.7%, double the expected decline, while the drop excluding Wal-Mart was 4.1%. The results are the worst since the measure’s inception in 2000.

“Consumers are clearly putting their wallets under lock and key and reacting to the severe economic conditions at play right now,” said Patricia Walker, a partner with the North American retail practice of Accenture Ltd.

But, we’re starting to hear some chatter that we’ve hit the bottom, and will likely stay stagnate for a while to come.  On October 27th, the S&P500 hit a low of 849.  The last time the market was this low was in October of 2002, the deepest part of the last recession:

Does that mean we’re set for gains?  Certainly not.  But the bad news just keeps coming, and the market is great at pricing in this information.