Last month, Q4 2008 GDP was expected to show a 3.8% annualized drop. Economists were expecting the actual number to be –5.4%. But GDP came in worse than that this morning. The U.S. economy shrunk at a 6.2% annualized rate between October and December, 2008. That’s the worst performance in 25 years.

Stocks fell sharply on the opening, partly in response to the news. But should it be that big of a surprise?

After all, we’ve known that the fourth quarter was bad – that’s why the S&P 500 is trading at 1997 levels. Is there any reason to have been hopeful that maybe it wasn’t so bad?

Don’t be surprised if buyers step in during today’s decline.

Small-cap Recap

Stocks continued lower at midday on Friday on the GDP report and the news that Citigroup would turn almost a third of itself over to the U.S. government.

At 11:26 am ET, the Russell 2000 (NYSE:IWM) was down 1.41, or 0.36%, or 391.54. Advancers and decliners on the small-cap index were evenly split. The Dow was down 1.17% to 7,098.13 and the S&P 500 was down 1.6% to 740.81.

Citigroup (NYSE:C) reported it has reached a deal that will give the U.S. government up to a 36% stake in the embattled bank. The government already has an 8% stake in the financial firm. Citigroup also reported an accounting charge of about $9.6 billion due to deterioration in the financial markets and lowered forecasts, adding more strife to concerns over the bank’s present status. Citi said it would reshuffle its board, among other changes.

Continuing in the bank vein this morning, federal regulators announced today that will raise fees paid by U.S. financial firms and imposed an emergency premium on the roughly 8,500 FDIC-insured banks in order to collect $27 billion this . . .

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