One Word for Playing This Market -- 'Defense!'
Even with massive efforts to prop up the economy and banking system, the stock market is facing significant head winds that may persist through much of 2009. That means remaining cautious with your investments for many months to come until it becomes clearer whether these steps will bear fruit.</br></br>It's now been nearly two years since the collapse of the real-estate bubble began. But it was only late last year that the real impact began to be felt by consumers.</br></br>In previous downturns, consumers mostly kept spending, thanks in large part to easily available credit from banks and credit-card companies.</br></br>Meanwhile, in recent decades the already dominant role of the consumer in the U.S. economy became even larger. By the end of last year, consumer spending accounted for 70.4% of U.S. gross domestic product, up from around 63% in the late 1970s. In recent years, the savings rate in the U.S. turned negative, meaning consumers were spending more than they made.</br></br>But that lending has been choked off, and jobs have vaporized, sending the unemployment rate to its highest in 16 years. Consumers have responded by pulling back on their spending.