The Market Bargain hunters pour into stocks. The rebound reassures consumers, hastening the economy's recovery and leading to market gains. The unemployment rate rises. Consumers, burdened by debt, slash discretionary spending. Business cuts investment.
Corporate profits wither, further discouraging investment.
The economy eventually rebounds when the Fed lowers rates markedly. The Market Stocks trend downward, further shaking consumers' confidence and exacerbating the market downturn. But stocks begin to climb slowly by summer as investors look ahead to an eventual recovery. The government turns to fiscal spending but fails to stimulate the private sector. Foreign investors lose faith in the dollar, causing the currency to plummet and raising the cost of imports.