USU buisness professor: the market will recover
An already downward-spiraling economy took another dive after the terrorist attacks of Sept. 11.
Phil Swenson, head of the business department at Utah State University, said the hardest hit companies on the New York Stock Exchange were related to the travel industry: Airlines, lodging and recreation, as well as insurance companies.
Swenson, who has been doing investment management for select clients for the past seven years, said when trading resumed on Wall Street Sept. 17, investor uncertainty, combined with heavy selling drove prices down.
“Prices [on the stock market] are driven by expectations for the future. Whenever information comes into the marketplace that dampens expectations, it makes people less optimistic,” Swenson said. “When there are lots of sellers, prices fall.”
Swenson said stock analysts do not always agree on how the market will fare in the future.
“In any given time you can find analysts who are bullish [apt to buy] and bearish [apt to sell],” he said.
Swenson said the market will recover due to the resiliency of the U.S. economy.
“The market will come back,” he said.
Swenson said there are a few good reasons to buy stock. First, the long run returns to equity or ownership have exceeded returns in fixed income, like savings bonds.
“I think they are a pretty good buy,” Swenson said. “There is no guarantee but history has shown greater returns on the stock market.”
The Dow Jones Industrial Average is a common stock indicator. It is an average of how 30 United States industrial companies’ stocks are doing, Swenson said.
The companies are big, mature companies including General Electric, Johnson and Johnson, Microsoft and American Express. According to Reuters, the Dow has risen since the stock market crash of 1929, after bottoming out to only 212 points, to 11,908 points in January of 2000. The Dow had already sunk since 2000 to 9,431 points before the terrorist attacks of Sept. 11 before falling to a three-year low of 7,926 points.
Although much faith is placed in the Dow Jones Industrial Average, it is not the most accurate indicator for the stock market. The Standard and Poor 500 index measures 500 companies, Swenson said.
Reuters reports the S&P 500 rose to its high in January 2000 at 1,530 points. Since then however, it has declined to its current level of 1,050 points.
NASDAQ, which stands for National Association of Securities Dealers Automated Quotation System, is a network of computer trades usually for smaller companies just getting started, Swenson said. However, it is not limited to small companies. Microsoft still trades on NASDAQ. Using NASDAQ as an indicator of stock performance is also accurate because 1,700 companies are traded on NASDAQ, he said.