One month into the new year and the stock market already finds itself in a deep hole.
For people whose portfolios were devastated by last year's market crash -- but who still held fast to their stock investments -- this may force some soul-searching about how much more pain they can handle.
Right off the bat, let's point up the good news here: Corporate, municipal and mortgage bonds generally have been profitable investments this month. So we aren't in the situation we faced last fall, when nearly every market was in meltdown mode. There have been places to hide this time.
Stocks, however, are an ugly mess. The Standard & Poor's 500 index slid 8.6% in January, its worst performance ever for the opening month of the year.
That's bad enough, but this month's plunge follows the 38.5% dive in the S&P last year.
To anyone who at the end of 2008 vowed, "I'm not going through that again" -- sadly, we're already on our way.
With the economy still showing no signs of recovery, equities are bearing the brunt of investors' fears of the future, which makes sense.
Stocks fell again Friday after the government said that the economy shrank at a 3.8% annualized rate last quarter, the worst decline since 1982.
The drop was smaller than expected, but for the wrong reason: Rising inventories of goods during the quarter counted as a positive in the government's calculations, but they'll translate into more production cuts this quarter if consumer and business demand fails to pick up.
In December and through the first few days of January, Wall Street seemed hopeful that the government's ongoing bailout of the financial system, and plans for an additional $800-billion fiscal-stimulus package, would be enough to stabilize the economy and set the stage for a rebound.
But the mood darkened as the month wore on. Fourth-quarter corporate earnings reports have been nightmarish. Companies in the S&P 500 are on track to report an average year-over-year profit decline of 35% for the quarter, according to earnings tracker Thomson Reuters.
What's more, analysts are slashing their estimates for first-quarter results: They're now expecting a 25% decline, on average, double the drop they projected a month ago.
Even companies whose sales normally hold up well in economic slumps are finding themselves struggling as strapped consumers keep cutting back. On Friday, Procter & Gamble stunned investors by reporting an overall 3.2% drop last quarter in sales of its food, toiletry and laundry products -- and a 7.3% decline in operating profit.
