Despite the earth-shaking, “extraordinary” events in September, and the stock market declines “of historic proportions,” financial advisers are still telling investors to stay the course and predicting the financial crisis will continue as a recession through next year—but won’t worsen into a Depression, Money magazine and the Orlando Sentinel report.

 

It appears that corporate profits will decline this quarter, which would mean the fifth consecutive quarter for earnings declines. Two key figures to look for next are consumer spending and layoffs.

 

Some financial experts, however, are not dour on their employment or consumer spending outlook. “This is the strongest recessionary job market in 40 years,” said James Paulsen, chief investment strategist at Wells Capital Management, who added that he does expect more layoffs in financial services and housing, but perhaps not in other industries.

 

Keeping up the faith of some financial experts is a boost in exports due to a weak dollar, the coming effects of the government’s stimulus plans and lower oil prices.

 

“If all this stimulus has no effect on the economy, that would be a rarity, indeed,” Paulsen said.

 

David Wyss, chief economist at Standard & Poor’s, shares Paulsen’s tempered outlook “This is a financial panic, not an economic one,” Wyss said.

 

Chris Toadvine, a certified financial planner in Orlando, Fla., concurred: “I don’t think we’re in for a 10-year storm. This is a significant event we’re living, through, of historic proportions. But structurally, we have a lot of advantages,” not least of which are the government FDIC bank guarantees, increase in the money supply, lower interest rates and federal plan to buy distressed assets linked to mortgages.

 

Thus, advisers are reminding investors of the unpredictability of a return in the stock market’s resurgence, as that typically happens ahead of an actual recovery in the economy.

 

As history proves, net withdrawals from equity funds are often ill-timed; the only two years in which mutual funds suffered net withdrawals were in 1988 and 2002, and both years were just prior to 12-year and five-year bull markets, respectively.

 

“If you leave the market now entirely, you probably won’t make it back in time to enjoy the recovery,” cautions Phillip Cook, a financial planner in Torrance, Calif.

 

One wild card, of course, is if the credit markets remain frozen and do not return to normal, essentially locking consumers out of real estate and credit card deals. A second big question is if the bailout causes the budget deficit to balloon upwards to $1 trillion, or 5% of GDP. That would cause the dollar to weaken further and threaten runaway inflation, resulting in higher market interest rates to rise and investors yet further discouraged from buying U.S. bonds and stocks, alike.

Nonetheless, the mantra of looking out to the long term, is one financial planners continue to repeat. And for those investors on the cusp of retiring, the advice all around is work one to three years longer to make up lost ground.

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