Dow Plunges 504 points, but look at the big picture

Posted by Tina Righter at 9/15/2008 8:59 PM
Categories: Finance, McCain


Today the Dow Jones Industrial Average saw the worst drop since the 9/11 attacks with a 4.4% drop from 11,421 to 10,917.  Investors are responding to the unstable conditions of major financial institutions such as Lehman’s, Merrill Lynch and AIG.  Following the government takeover of Fannie Mae and Freddy Mac, investors are very nervous.

It seems that all the US financial news lately is bad news.  But before you run out and liquidate your portfolio, or lay in bed awake at 2am worrying about it, take a good look at the Dow in context.  The big picture of the market does not look all that grim to me.  When we compare the rates of increases and decreases (steepness of the slope) you can see that today was not a particular stand-out from the trends of the market unless this trend continues day after day.  A 4.4% change is not the end of the world.  However, the way the media is responding, it could induce panic and result in a much bigger impact.

The general indicators of the overall status of our economy are definitely bad news over the last year.  The good news is that its still pretty darn good over the last ten years, and most folks are in the markets for the long haul.  If you were ready to “liquidate it all” last year but changed your mind, this is seriously bad news for you - but that situation probably applies to 6 Americans.  Ok maybe 6000.  I wouldn’t go so far as to agree with McCain who claims “the fundamentals of our economy are strong” but I also don’t think the media is giving us the proper perspective.

The overall loss of $700 Billion in a day is not something the average American can comprehend, I know I can’t.  But I can see that we are back to where we were two years ago in the Dow.  Not 10 years, not 20.  People have not lost their nest eggs but have lost two years of progress.

 

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