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Can Washington Revive The Economy?

The federal government is tackling the economic slowdown head-on. But historically this approach has had mixed results. Will it work this time around?

Can Washington Revive the economy

There's strong evidence that the U.S. economy has been in a recession for the last four months. "The National Bureau of Economic Research (NBER) Business Cycle Dating Committee looks at four specific economic measures to determine whether the economy has fallen into a recession — personal income less transfer payments, in real terms; employment; industrial production; and the sales volume of the manufacturing and wholesale-retail sectors adjusted for price changes.* All these economic factors have fallen from their recent peaks, meeting the NBER definition of a recession," says Kathleen Bostjancic, Merrill Lynch Economist.

In the meantime, our government's response to economic conditions has been anything but laissez faire. Each new day seems to bring fresh headlines about federal initiatives designed to rekindle economic growth. What remains to be seen is whether this combination of strategies will have the desired effect.

Federal intervention in times of recession is more or less automatic, says Merrill Lynch North American Economist David Rosenberg.

Investing in the New Market Leaders

Five sectors most likely to emerge as the market's next bellwether sectors. Here's how you can make the most of the opportunities that arise in this volatile market.

Investing in the New Market Leaders

The best minds on Wall Street generally agree that global markets will continue to be unsettled throughout 2008. The ongoing uncertainty has naturally made some investors skittish. But there's a flip side to market volatility: Just as many of the market leaders of the past several years have slipped, a new group is emerging. "Leaders going into a period of increased financial market volatility simply have not been the leaders coming out," says Richard Bernstein, Chief Investment Strategist at Merrill Lynch, (See "History of Recent Leadership Changes" at bottom of page.) The new hierarchy that's surfacing provides significant opportunity to thoughtful investors as they look to rebalance their portfolios.

Volatility signifies change, not weakness
So what's behind the market upheaval? In part, it's the tectonic shifts in worldwide economic conditions. "Volatility is predominantly a symptom of change in the underlying global economies," says Bernstein. "And the biggest change is the tightening of credit markets around the globe.

Defensive Sectors For Volatile Times

Merrill Lynch strategists point to health care stocks and consumer staples as havens from market turmoil.

Defensive Sectors for Volatile Times

With credit troubles roiling world markets and conventional wisdom pointing to the safety of bonds, some investors are wondering whether to stick with stocks at all — and if so, which ones. In such uncertain times, one trusted strategy is to invest in defensive sectors: the industries that supply the goods and services consumers need every day, even in recessions.

These industries include retail drug and grocery stores, makers of essential household products and popular beverages, and pharmaceuticals. "Health care and consumer-staples stocks traditionally outperform the broader market during economic slowdowns and recession," says Brian Belski, U.S. Sector Strategist for Merrill Lynch.

Defensive stocks, which outperformed in 2007, are expected to remain among the market leaders this year, according to Richard Bernstein, Merrill Lynch's Chief Investment Strategist, who expects the economy to shrink throughout much of 2008. In that eventuality, many companies will suffer earnings declines, and investors will gravitate to defensive stocks with steady earnings, pushing up their prices.

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SMART SOLUTIONS: Investment Ideas for Challenging Times

Even in today's economy, there are always smart places for your money. Listen to the experts in this special video series. Then start a conversation with your Financial Advisor.

Welcome to this special Smart Solutions series, featuring some of the brightest minds in investing, politics and industry. Here they share their unique perspectives on preserving wealth and pursuing growth in today’s markets. Each video below is filled with actionable ideas to discuss with your Financial Advisor, who can help you keep your goals on track.

View The Program

In a Year of Surprises, What to Do Next

Chief Investment Strategist Richard Bernstein discusses the latest Research Investment Committee report, which looks at where the market might be headed next in this year of surprises.

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This month's RIC Report highlights the surprises—positive and negative—that have emerged thus far this year. Some of the unexpected developments include a significant downturn in global equity market performance (despite anticipated decoupling of global economies), an unexpected run on commodities, and the way global bonds have outperformed  global stocks.

These surprises only serve to underscore the importance of diversification, says Bernstein. He recommends places where investors may find opportunity in this market environment, like overweighting utilities versus REITS and weighting developed markets over underdeveloped or emerging ones. The Report also offers 10 investment themes proposed by Merrill Lynch's Research Investment Committee at the beginning of 2008, rating their usefulness as a guide for investors as they navigate continuing market volatility. As always, before you make any investment decisions, discuss them with a Financial Advisor.

Every month, the Research Investment Committee (RIC), led by Chief Investment Strategist Richard Bernstein, meets to provide clients with a thoughtful analysis of key issues that drive U.