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Friday, June 27, 2008

How now Dow?

After yesterday’s 358-point haircut on the Dow, how low can the stock market go?

Economists answer as follows: Much lower. No lower. Impossible to tell.

Take your pick. It all depends on who’s talking.

The Dow Jones industrial average, Nasdaq composite index, and Standard & Poor‘s 500 index each fell about 3 percent yesterday. For the year, the Dow is off 13.7 percent, the Nasdaq is down 12.4 percent, and the S&P has fallen 12.6 percent.

William Dunkelberg, economics professor at Temple University’s Fox School of Business, said the Dow has about a 25 percent chance of falling another 500 points before a turnaround.

Or maybe it’ll be a 1,000-point slump. Hard to tell, he said.

But, Mark Zandi, chief economist at Moody’s Economy.com in West Chester, said he feels that the brakes already are on.

“I think we’re there. This is the bottom, roughly speaking,” Zandi said.

The bad news, from Zandi’s view, is that it’ll be another six to nine months before a recovery kicks in.
Until then, the market will have “good days and bad days, good weeks and bad weeks, good months and bad months.”

David Shaffer, finance department chairman at the Villanova University School of Business, said he doesn’t know how low to go.

The credit crisis, continuing uncertainty over how the Federal Reserve is going to react, and the volatile energy markets are fueling relentless market turmoil, he said.

“I don’t know what the bottom is. I’m stunned, day after day.”

“What we’re facing is just an enormous amount of uncertainty. … Every day we think we’ve cleared another hurdle, some more bad news comes,” Shaffer said.

Meanwhile, Dunkelberg — of the possible 500-to-1,000 point decline — has some advice for investors: Buy stock.
According to him, no matter how insane the economy looks, the old rules still apply. What goes down will come back up.

“Profits are the fundamental driver of share prices in the long run,” he said. “There’s tons of money sitting on the sidelines, and this is about psychology.”
Posted by Reid Kanaley @ 3:05 AM  Permalink | 1 comment
Comments   
  • 0 like this / 0 don't   •   Posted 1:45 AM, 06/29/2008
    I am one not to make predictions, but over the next 12 months the DOW will be flat to negative. You have to be careful about listening to economists who are not even investors.
    — Roy Philipose


1 comments
About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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