The Dow just hit a new high, but GDP suddenly drops to a new low - no, its not today, its March of 2000, right before we entered the last recession. At that time, the Dow had closed at 11,723 in January, while Q1 GDP growth was 1.0%. By Q3 2000, GDP had turned to a negative .5%, which led into a two year recessionary period in which the U.S. economy didn’t fully recover until Q2 2003, when GDP growth broke out to 3.5%. But, that wasn’t until the Dow lost 40% of its value, tumbling to 7,181 during October of 2002.

Friday, the BEA reported that U.S. GDP growth for Q1 2007 was a troubling 1.3%. The last time GDP was this low was in Q4 2005, when it was 1.8%, a result of Hurrican Katrina. GDP stayed at or above 2% every quarter prior to that, since Q1 2003, the tail-end of the last recession. (Source: GDP News Release)

What It Means to You

The relationship between the stock market and the economy is like any marriage - one partner can still feel like partying, while the other is feeling a little down. However, this party has been fueled by loans from Japan and China for a long time. (See The U.S. Economy’s Greatest Threat?)

In times like these, I always say “Hope for the best, but prepare for the worst.” Now would be a good time to talk to your financial planner about taking a more conservative approach with your personal finances.

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