The economy is much worse than the financial markets. The Fed's release today of their lowered expectations for the economic recovery is simply one more marker that this recovery is unlike any other except during the dark days of the 1930s. Even Obama has acknowledged in recent days that maybe the government is part of the problem, as his press aide Gibbs acknowledges that the public may take out their frustrations on Obama's political allies.
The markets are likely to sell off during the next few days and weeks, but look for a strong rally as the stock market factors in the end of heavy Democratic majorities in Congress. The political climate for business is bound to improve after November and it is highly likely that Obama will, finally, shift course from stifling economic recovery to, at the very least, removing himself as the main obstacle to recovery.
The truth is: Obama and his anti- business agenda (and rhetoric) are the problem. Obama thinks job growth is a simple matter of getting the government to hire more people. He doesn't trust the private sector, partly because he doesn't understand it, but mostly because he is ideologically opposed to free markets.
But when the stock market sells off again, and it will, buy it when all the talking heads tell you to sell. There will be a "political change" rally as we get closer to election day.