The Idea of a Double-Dip Recession Is Just So 2008

Last Updated May 26, 2010 9:30 AM EDT

After a nail-biting day on Wall Street -- and a frustrating month of stock market deterioration, it's fair to start asking aloud whether the unfolding market correction is the first sign that a feared double-dip (the recession, not the ice cream cone) is coming. But this is not 2008, and a side-by-side comparison of conditions then and now show that a repeat of that downturn is not about to kick the economy back to where it was.

It is true that Europe's sovereign debt crisis, the same misfortune responsible for the recent volatility in the markets, would also be the primary culprit of a second wave of recession. And it is certainly a troublesome problem (which my colleague Carter Dougherty recently wrote about).

But take a look at some of the differences outlined by Tim Hayes, chief investment strategist at Ned Davis Research:

  • When the Dow Jones Industrial Average plunged 18 percent during "Black Week" in October of 2008, the market was already sagging through a prolonged bear market. The current correction is occurring in the middle of a roaring bull.
  • The selloff of 2008 happened after the housing bubble had burst and after institutions like Lehman Brothers had filed for bankruptcy protection. Today's declines are happening in "the most favorable economic environment since 2003," according to NDR's earnings model.
  • This may be the most crucial difference: In 2008, corporations were experiencing their worst earnings since the Great Depression. In contrast, earnings for the first quarter of 2010 were the best in four years.
A market correction is always painful for many. And to be sure, Europe is just one of a bottomless pit of difficulties buffeting the economy at the moment (oil prices, looming deflation, slowing growth in China, tension between the Koreas and on and on). But again, this is not 2008. As jittery as investors may be now, they had much better reasons to be jittery then.