We have seen these types of declines before, and the next week the market jumps back up. As the FED announces a 1/2% cut in the discount rate next week, we will probably see another 200 plus day.
If you believe the un-employment numbers (i dont) then things are not that bad. Five percent un-employment is great, and 6 or 7 percent is still O.K. If you believe the inflation numbers (i dont) we are still under 3% and in great territory. With the talking heads saying that manufacturing is not as important any more because we import a lot of finished goods, many will still believe that things are fine. Remember that with real inflation at about 10%, and official inflation at 3%, you need negative 7% growth to become an official recession – negative growth in GDP
If you believe that we are not in a recession now (i don’t) then what will it take to convice most Americans that we are actually in one. I think that they will be able to keep the markets bubbled for some time to come.