Worse than the Great Depression?

Even after the rally off the March lows, S&P 500 is still over 40% below its peak in 2007; it is now at the levels of 1997, twelve years ago!  In fact, the ten year period from 1999 through 2008 is the worst decade in market history, returning compounded annual average of negative 1.38%.  The second worst decade was 1929-1938, returning -0.89% and this period of course included the Great Depression.  Early 1930’s were a great time to get into the market for long-term investors, and I believe that is the case today as well.  History doesn’t necessarily repeat itself, but it does rhyme.

While I am optimistic long-term, short-term outlook still remains as cloudy as ever.  Relatively benign economic reports and company earnings convinced majority of the economists that the worst of the crisis has passed; recovery is expected later this year or in 2010.  These reports and expectations are most likely already reflected in stock market prices, however.  While the rate of decline has slowed, at present the economy is still contracting, and housing prices are still falling.  In order for the rally to continue, we will need to see actual evidence of positive GDP growth.  Just like last quarter, coming earning reports in July and August should provide some clarity.  In the meantime, there is a good chance that markets will be indecisive and move sideways for a few months.