The market action might have left investors feeling like George Taylor (the Heston character) at the end of Planet of the Apes. In this case “they” might be the Congress or the entire political system.
Unfortunately the economic data stinks too. As a very simplistic reminder, the market goes up most of the time but occasionally it goes down and some of those declines scare the hell out of people. I can’t really imagine the decline thus far has scared the hell out of too many people.
However, if the trend continues then more and more people will be driven to some sort of emotional response which might lead to panicked trades. For anyone new this is not a permabull argument to stay invested it is instead a stick to whatever strategy you laid out beforehand argument. If your strategy relies on a percent decline, a crossover of moving averages or a drop below a moving average or something else just stick with it. Presumably you came up with some sort of strategy at a time when your emotion was not a factor so all that needs to be done is that it is stuck to.
Now back in the real world, not enough investors, both professionals and do it yourselfers, have such a plan. It is valid for a plan to be hold on no matter what, that is not for me of course and maybe not you, but for people who still believe markets work (I do but have more faith in foreign markets) then a proper asset allocation that includes not selling equities based on cyclical events can be valid. All those people have to do is remember not to lose their conviction the next time there is a March 2009.
My opinion is that the economy is headed into a recession based on the GDP data and a couple of other things. That the previous recession was so recent should mean that it is now too soon for a recession however with a balance sheet recession there is a different dynamic which is evidenced by how poorly so many of the economic data points are and have been since the recession was declared to be over. You can read Cullen Roche on this matter and his many references to Richard Koo’s work on the subject. But to repeat, more important than being correct about a recession or bear market is to remain disciplined.