SEARCH BLOG: STOCK MARKET
The economy has exhaled a bit and, of course, that is cause for concern. One can never say with 100% confidence that what has happened in the past will continue in the future. Still, a downturn in the stockmarket has inevitably led to a rebound that surpasses previous levels.
This chart from Yahoo! Finance shows the long-term history of the Dow Industrial average.
The trend after the great depression has been a long upward trend with a notable pause for the decades of the 60s, 70s and the beginning of the 80s. Then the market became popular... note the trading volume at the bottom of the chart.
This particular chart shows the DJIA values on a logarithmic scale... changes show the percent changes even though the values are absolute levels. So the vertical change from 2,000 to 4,000 is the same a from 8,000 to 16,000... 100%. Even with the big drop in 2002-03, the Dow's value hardly rippled from the trend line.
Sure, we feel uncomfortable with the 17% drop in the past 6 months. That's wiped out all of the gains for the past 12 months. But that's the point, it is only 12 months.
It could be just another "correction" or it could be something more fundamental given the banking and housing problems, the decline of heavy industries, and the complete absence of any rational energy policy.
If you have a portion of your investments in "cash", your paper losses haven't been as bad as some aggressive equity positions. Of course, you could have a big position in oil or gold or foreign currency and having a great time.
Just remember that when portions of the economy get too far out of balance, the see-saw has a way of changing directions again. There will be a recovery, but the economic mix may be changing more rapidly than we imagine...