If you just chart the GDP on a quarter by quarter basis, you see a decline in the rate of expansion. You also see promotional Government activity on a quarter by quarter basis--almost certainly GDP that actually occured in 2001Q4 was pushed forward into 2002Q1; further, much of the real GDP increase in 2002Q1 was production for inventory which is not sold (the car companies have agreed to pay workers to make cars whether they are working or not so it is cost effective for GM to build cars at a loss for inventory and sell them at a further loss if the economy actually does recover someday); but a continuous chart for the period shows that overall, production by the economy continued, and there was a continued increase, but the rate has been slowing since 1999.
The stock market was extremely overpriced throughout the later period of the expansion--the only excuse for that was that the investors were convinced that the economy and corporate earnings would continue to increase so that these enterprises would some day make enough profit to justify prices. Not a very realistic expectation but they did it anyway.
Beginning in early 1999, investors began to wake up to the fact that earnings growth was slowing; that earnings would never justify prices; and stock prices start down toward reality. I have restated earnings for a number of S&P Companies from released earnings to my view of a realistic comparable GAAP (Generally Accepted Accounting Principals) number and I believe it is reasonable to say that even after the sell off over the last few months, we are now at a Price/Earnings ratio for the S&P of around 35-40 which is an extraordinary high.
There does not appear to me to be any reasonable basis on which you can see an expansion of the economy at any immediate point--we have no savings, no domestic investment capital, excess levels of debt at the consumer, business, and government levels; and after tax rates of return on investment are so low as to discourage any capital formation activity.
So the economy is going to continue to deteriorate into a real contraction of GDP, an in fact first dip recession; and stock prices are going to continue down to P/E ratios that reflect reality.
meenie's point about the dollar is well taken--but in the short term, the dollar's exchange rate slide against the yen, the euro and other currencies is not as serious a problem as it might be because those currencies are the reflection of economies which are in as bad shape as our own and for which improvement relies on improvement in the US which is not going to happen.
The Canadian Looney may be an exception--they are a resource production based economy and may well ride this out better than others--they may not.
The real problem with the dollar is the exposure to a complete breakdown in the system in which derivative collapse implodes the fiat dollar support--that may be an argument for physical gold.