May 20, 2010
Wow, what a ride that stock market is. Over the past week the Dow Jones has had swings of down 346 points to up 405 points. What started as a sell over European debt concerns led into a full-fledged rout where blue chip companies temporarily traded for pennies and the Dow swung down around 1,000 points. Don't be fooled. That free fall was largely the result of computer trading and couldn't be slowed by rules that used to be standard practice, which is why we've never seen such a swing before.
For many investors, fresh and painful memories of the fall season in 2008 suddenly and understandably surge to the front of our minds. However, that history does not paint a complete picture. Back then, we were in a much different place economically. The key difference is that the global economy was contracting; now it is expanding. We've recently seen strong employment numbers, solid GDP growth, strong corporate earnings, etc. The global expansion is likely to continue despite what happens with certain European governments. The American economy, together with our non-European trading partners, should prove strong-enough to grow through these problems. These factors make it unlikely for markets to experience a repeat anywhere near the magnitude of 2008. My advice is to not let the market frighten you into doing something reactionary. Look past the volatility and let cooler heads prevail.
Brennan R. Redmond, CFA
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).