Jim Jubak - MSN Money

I was wrong. I no longer think we're facing a garden-variety recession. At a minimum, it will last longer than the two quarters I projected on Sept. 30. Economists are now talking about a recession that will last three, four or even five quarters. (Keep some perspective here, please. We're still not looking at anything like the Great Depression. In 1932, the economy contracted by 13% and unemployment hit 24%.) And I don't think we're looking at anything like the hoped-for V-shaped recovery, in which the economy zooms out of the bottom, showing growth of 5% or more. The economy, I believe, is going to crawl off the bottom with growth that's likely to linger at less than the 2.5% the Federal Reserve calls the U.S. economy's noninflationary speed limit.

I no longer think this is the typical bear market, not even if your benchmark is the painful one of 1973-74 or the excruciating one of 2000-02. Stocks now face a triple-whammy. First, a slow-growing economy will keep earnings growth depressed from levels investors now regard as customary. That means price-to-earnings ratios will have to come down to something below the historical averages for stocks. Second, the higher interest rates will cut into earnings further as all companies have to pay more to raise capital and as some companies defer expanding production or developing new products completely. In industries where this deferral leads to supply lagging demand, it will also lead to higher inflation, which will push up interest rates.