The stock market affects many students here at the University directly and indirectly. Countless students will invest in the market in the near future - whether through purchasing stocks or by investing in mutual funds. Others will go on to purchase their own homes or start their own businesses.
Even students who do not appear to be directly affected by changes in the market - those who do not pay their own bills, finance their education or try their hand at investing - have taken notice of the nation's recent financial difficulties.
Shocks from the collapse of major firms such as Lehman Brothers and Bear Stearns resulted in the Dow falling from its all time high of more than 14,000 points to only slightly more than 6,500. Housing prices crashed and unemployment soared. Talk began of a possible second Great Depression and prompted a series of massive government bailouts.
So far, though, the recovery has been a rapid one. The Dow Jones Industrial Average surged past the 10,000 mark Oct. 14, capping off a 53 percent recovery in seven months. Hailed by some as a sign that the U.S. and world economies were rebounding, the surge seemed to forecast a return to economic stability - maybe even a return to when the market hit its peak of more than 14,000 only two years ago.
Unlike March 1999, when the market first broke the 10,000 mark, last month the feeling of celebration was veiled by one of relief, as many investors began to hope that the recession had finally ended.
At the same time, however, many investors did not consider the value of 10,000 as pointing to a real recovery. Considering that the stock indices have risen from their low point in March but that unemployment remains high, some analysts have noted that the markets are still well short of their previous highs, even after adjusting for inflation. The possibility of a quick, immediate return to those lofty highs is a point of debate. Some economists predict a long period of slow growth before full recovery is possible.
"In my view, this [full rapid recovery] is very unlikely to occur," Assoc. Commerce Prof. Patrick Wilkie said. "I think the more likely result is for very slow and erratic growth with very little improvement in employment for the foreseeable future."
The perception that the worst is behind us is currently one of the driving forces of the fast pace of the market's resurrection. Nevertheless, some experts have forecasted a series of potential problems. Interest rates are being held at low levels to encourage investment, but fears that they may soon have to rise to offset an ever-weakening dollar could divert more of investor's money into bonds, a generally safer option.
Many companies have been experiencing higher than expected profits, but as a result of new cost-cutting measures, sales have remained stagnant. Employment levels have shown no sign of improving, and housing prices remain low - both troubling signs if a full economic rebound is to happen.
The mere psychological impact of the 10,000 mark may have led private investments in stocks to rise with the rally. Regardless of whether the 10,000 mark is of empirical importance, investors seem to be investing with more confidence in the rising stock market.
The numbers reflect this finding, as trades per day have generally been on the rise from their minimum earlier in the year. As of August, online retail brokerage firm TD Ameritrade reported a 71 percent increase in client trades per day from last year, marking one of the most profitable periods in the firm's existence.
Ultimately, for investors to fully regain confidence in the market, they need to feel that their investments are going to be productive for the amount of risks they will run.
"I believe the 10,000 mark is about lowering expectations of risk," Commerce Prof. Robert Kemp said. "There is still a lot of risk in the market. People do not know if and when the economy will improve."
The Dow Jones Industrial Average currently sits at several hundred points below 14,000. A full economic recovery, and growth beyond the historical high of 14,000, are both still a long way off. Still, they are not impossible.
Read More
An ode to running
By Malone Morchower | YesterdayIn addition to providing me with opportunities to connect with others around Grounds, I really value the way that running immerses me in time and place.
Khul Ke Nacho — a celebration of free-spirited dancing
By Malaika Rehman | 2 days agoThe sea of attendees wearing desi attire and dancing joyfully throughout the night was a reflection of the thriving Pakistani community in and outside of PSA.
Holding onto every grain in the hourglass
By Mai Hukuoka | 3 days agoNow that I’m back at school, I have made it my mission to take note of the sneaky passage of time.
