The stock market recovery in 2009 has been a very impressive one. All in all things certainly look much better now than they did at this time a year ago. The possibility of a second Great Depression has been avoided and an economic recovery, although slow, seems to be starting. As an individual investor it is important to keep perspective about where we are and where we have been. The broad based S&P 500 is up more than 60% from its low set in March of 2009, and all the major indices are up in a huge way.

A day like today shows the vulnerability of a stock market that has gone so far and so fast. The overall market is very weak today after several pieces of fairly bad news. FedEx issued a very disappointing third quarter forecast, jobless claims were higherthan expected for a second week in a row, and Citigroup plunged after the government backed outof a deal to sell more shares of Citi stock at a very depressed price. All of these together caused investors to stand back and take a breather from this market. The simple fact of the matter is that when the market has performed as well as it has in the past few months any kind of negative news will likely cause more of a pause.

In an economic recovery things won’t go in a straight line upward. Continue to watch the overall long-term trends and hopefully we will keep seeing good news. The truth is we should be very glad that we are in a market environment now where negative news comes as a surprise. Remember last year when negative news was the norm and any inkling of positive news was hard to find? Keep things in perspective and keep watching the long-term trends and invest wisely!

It’s a fundamental lesson in economics and a lesson that all consumers and investors should understand. Even if we are in the midst of a healthy recovery it will not be a straight line up. Rather an economic recovery always has plenty of rough spots in it where it may still feel like we are in a recession. Don’t be alarmed the first time the stock market has a pretty strong move to the downside or the first time some of the economic numbers don’t show a very optimistic picture of the economy. An economic recovery is typically full of times where consumers and analysts alike question whether the recovery is real or not.

The recession we have been in was a very deep recession that will take a long time to recover from. The stock market has certainly priced in the fact that a recovery is on its way, but it may not have factored in the economic bumps in the road that are sure to come. Since September and October are typically two of the worst months of the year for the stock market, an investor should probably tread carefully with the stock market at these levels. There will certainly be some pullbacks where you can find stocks at a better price.

It’s fine to be optimistic about the outlook of the economy for your country and the world as a whole, but it is definitely wise to be realistic about the recovery. When there has been such a powerful global recession where so many have lost their jobs and the strength of the consumer has been compromised so badly, you must realize that it will take time to heal those wounds. The recovery may well be taking place now, but don’t expect a straight line up for the economy or the stock market!

The credit crisis began to surface late in 2007 when the Dow was trading near 14,000. The Dow now sits below 7,000 and the economy is tumbling lower and lower each and every month. I still remember quite clearly the economists and the talking heads on television saying that this recession would likely be a short lived recession and talking of  economic recovery taking place in early 2009. Fast forward to early 2009 and not only has an economic recovery not taken place, the economy is in the worst shape it has been in yet. The housing industry started it all, but it has become spread across the entire economy now.

Lately many major economists, including the Federal Reserve itself, have lowered their economic projections for 2009 as well as future years. Ben Bernanke has said that he believes the unemployment rate will continue higher for quite some time and remain high through at least 2011. He also stated that he believes an economic recovery in 2010 is still possible, but only if are ailing banks are stabilized. The problem with that is those same banks were ailing badly more than six months ago now, and it seems very little has changed since that time. At this point it is hard to tell if progress of any kind is being made in the banking industry.

Even though the labor market continues to worsen and expectations are that it will take years to recover and the consumer confidence rate is at record lows some still continue to believe that 2010 will be a strong recovery year. I find it possible that 2010 will be a year where a turnaround could begin, but it will take a long time and it should be a very slow recovery. Remember that as the economy worsens these estimates of when an economic recovery will take place are likely to keep getting farther and farther out.

Ask a dozen experts just how bad the economy will get in the coming months and years and you’ll get twelve different answers. Granted, all of them are likely to say something similar about how terrible things will be, but no one knows exactly how bad it will get or when the carnage will end.

Let’s take a look at what we know so far about how bad the economy is. We know for a fact that the housing market has fallen off a cliff and there is no end in sight for that bubble. We also know that the credit markets have been frozen up in a major way which has led to a run on our financial system like we haven’t seen in decades. The investment banking industry as we previously knew it is gone and many of the major money center banks are still hurting severely for capital. It has also become evident in the last few months that this economy is clearly in at least a severe recession, and it is widespread one. The job market has collapsed in the last few months, and with it consumer confidence has tumbled to all time lows.

How bad will things get before they turn around? The truth is no one actually knows the answer to this question and anyone who says they do is clearly lying. Sure there are signs that will let us know how deep the recession could be, like the monthly job data, but there is simply no single way to know how bad it could get or when it will be over. The main point to remember is this, the economy looks like it may be worse now than it ever has been in most of our lives. What does that mean? It means you shouldn’t take any predictions too seriously.