Newspaper article THE JOURNAL RECORD

Street Looks Back on a Summer of Discontent

Newspaper article THE JOURNAL RECORD

Street Looks Back on a Summer of Discontent

Article excerpt

NEW YORK -- Hardly anybody is in a mood to celebrate as Wall Street marked the traditional "business New Year" at Labor Day.

It has been a stormy summer, to put it gently, in the world's stock and bond markets. As investors and brokers pack away their vacation gear, the big debate on the Street focuses on whether a 16- year bull market might have ended.

Without question, many investors large and small have suffered painful losses in the market's recent retrenchment. But staunch optimists say some beneficial things have also happened, setting in motion forces that may actually work to extend the bull market's life rather than killing it off.

"The average New York Stock Exchange and Nasdaq stock is down more than 40 percent from its high," says Thomas Galvin, chief investment officer at Donaldson, Lufkin & Jenrette Securities. "The breadth and sentiment deterioration are quite comparable to those in the 1987 crash.

"Aside from the current global political quagmire, apprehension is mounting about a U.S. recession next year."

But Galvin adds, "If there are three lessons to be learned from the 1987 experience, they are: 1) sentiment is always worse at the bottom; 2) stock market declines do not accurately forecast recessions, and 3) individual investors have cooler minds than trigger-happy institutional investors."

To be fair to them, institutional money managers face some pressures that force them to think about short-term trends in the market, in a way that individuals with long-term horizons need not concern themselves.

Clients of pension funds and shareholders of mutual funds can pull their money out of a manager's care at any time on short notice if they don't like the way things are going.

So assurances about the soundness of the domestic economy and the powerful long-term bias of stock prices provide only limited reassurance, and carry no promise whatsoever that more nasty declines won't occur in stocks.

Nevertheless, once you get past the emotions now running so high in the markets, some important positive things can be said. …

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