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The stock market’s past two months have been like none I or anyone else can recall, and volatility is without precedent. From Sept. 15 through last Friday there have been only three days on which the Dow Industrials closed with a change of less than 100 points. More common were intra-day swings of 300 points or more (one covering 1,000 points).
So where is the economy headed? First let’s look at where we are not going. This will not be like the great depression. In the early 1930s annual economic output was falling by 25 percent, unemployment rose to 25 percent, there was no FDIC to protect depositors when thousands of banks failed, the Hawley-Smoot Act brought trade to a halt, interest rates rose and the government unknowingly slashed money supply.
Does anyone see any similarities today? Of course not.
Today’s economy doesn’t resemble the severe recession of the early 1980s either. Back then the government ratcheted up interest rates in order to kill inflation. The prime rate reached 21 percent and unemployment was 13 percent. GDP was falling at an 8-percent rate. Conditions are very different today. That’s why economists say we are in uncharted territory.
This recession is worse than the last two (1990, 2001). Those mild recessions lasted two to three quarters. Our economy likely entered recession in the third quarter, and severe recessions last four to six quarters.
A number of factors are undermining confidence here and abroad, and stock prices will be under pressure until some of them are on the road to being resolved. Through the summer people were rightly concerned about an economic slowdown, then came the credit crisis, problems with banks and other financial institutions around the globe and deflation in assets of all kinds from real estate to commodities. When deflation is in the air, everything falls.
Most of the market’s volatility has been to the downside but there will soon be big upswings as well. A rally won’t be sustainable until investors can look beyond the recession to better days, and that won’t happen until the financial system is stabilized and confidence is restored. Progress has been made, but we’re not there yet.
Yes, it is disheartening to watch stocks fall so much day after day. I’ve seen bear markets before and stocks fell relentlessly, though more slowly. The bear markets all ended, of course, and bull markets soon began. For those who have remained invested my message is this bear market will end, too. It will end sooner than most expect. For those who have moved to cash, stay vigilant. The most profitable times occur when new bull markets begin.
David Vomund is president of Vomund Investment Management, an Incline-based firm that specializes growth using exchange-traded funds.. His Web site is www.ETFportfolios.net and his phone number is (775)-832-8555.
So where is the economy headed? First let’s look at where we are not going. This will not be like the great depression. In the early 1930s annual economic output was falling by 25 percent, unemployment rose to 25 percent, there was no FDIC to protect depositors when thousands of banks failed, the Hawley-Smoot Act brought trade to a halt, interest rates rose and the government unknowingly slashed money supply.
Does anyone see any similarities today? Of course not.
Today’s economy doesn’t resemble the severe recession of the early 1980s either. Back then the government ratcheted up interest rates in order to kill inflation. The prime rate reached 21 percent and unemployment was 13 percent. GDP was falling at an 8-percent rate. Conditions are very different today. That’s why economists say we are in uncharted territory.
This recession is worse than the last two (1990, 2001). Those mild recessions lasted two to three quarters. Our economy likely entered recession in the third quarter, and severe recessions last four to six quarters.
A number of factors are undermining confidence here and abroad, and stock prices will be under pressure until some of them are on the road to being resolved. Through the summer people were rightly concerned about an economic slowdown, then came the credit crisis, problems with banks and other financial institutions around the globe and deflation in assets of all kinds from real estate to commodities. When deflation is in the air, everything falls.
Most of the market’s volatility has been to the downside but there will soon be big upswings as well. A rally won’t be sustainable until investors can look beyond the recession to better days, and that won’t happen until the financial system is stabilized and confidence is restored. Progress has been made, but we’re not there yet.
Yes, it is disheartening to watch stocks fall so much day after day. I’ve seen bear markets before and stocks fell relentlessly, though more slowly. The bear markets all ended, of course, and bull markets soon began. For those who have remained invested my message is this bear market will end, too. It will end sooner than most expect. For those who have moved to cash, stay vigilant. The most profitable times occur when new bull markets begin.
David Vomund is president of Vomund Investment Management, an Incline-based firm that specializes growth using exchange-traded funds.. His Web site is www.ETFportfolios.net and his phone number is (775)-832-8555.
