Nearly three weeks ago the U.S. Congress approved an historic $700 billion bailout of America's economy. But creditors and investors still remain uncertain about the future. The Dow Jones Industrial Average has fluctuated hundreds of points within a single day, as nervous investors wait to see what happens next. VOA's Robert Raffaele talked to some economic experts about the market's volatility, and what is needed to restore stability.
For weeks, stock brokers, traders and investors have been reeling from one emotion to the the next as the world's stock markets rose and fell to historic levels sank 777 points, its biggest single-day point decline ever.
|Trader looks over financial data in a booth on the floor of the New York Stock Exchange, 15 Oct 2008 |
Then on October 13, the Dow rebounded with a 936-point gain. Since then the Dow has continued its erratic pattern.
Barry Wood, Voice of America's economics correspondent, says the collapse of several giant American investment firms, including Bear Stearns, triggered the panic which then caused a rapid drop in the value of U.S. stocks.
"You've had a series of declines that were just precipitous," Wood explained. "People don't know if stocks, which came down 45 percent from the peak of a just a year ago, if they've come down to the bottom or if there's still more distance down. "
Wood says anxiety is what led to market instability.
"So uncertainty, fear, all of that has contributed to volatility. People also need cash, and if they need cash, they sell stocks if they have them - that all contributes to the volatility," he said.
Bill Barker is a senior analyst with the Motley Fool, an investment advisory news service in Alexandria, Virginia.
Both he and Wood say nervousness about the details of the U.S. government's bailout plan also triggered sell-offs.
"When the bailout first came into being as a three-page idea, [a] document, it was talking about the government buying out the bad loans from the banks," Barker said. "When it was voted in a week - week-and-a-half later - it was a several hundred page document which included one paragraph about the government injecting money into banks. The form changed so fast. That's one of the reasons the market liked it one day and didn't like it another day."
Barker says investors want to see the American financial system stabilized, so that banks feel more comfortable about offering credit.
"The credit markets are thawing, but they are not flowing the way we would like them to," Barker said. "Once that is the case and both companies and individuals have access to the kind of money that they want to borrow and [that] they're used to, things will be better. What we need more than anything is stability, a period of a few weeks where there's no great event of another bank, or savings institution, or company, facing difficulty."
Bill Barker says many investors would be wise to follow the conservative approach of Warren Buffett. The American billionaire-investor has been advising others to stay calm. He is buying good quality stocks that are now priced lower than their actual value.
It is a pattern that has been successful for him," Barker noted. "During the first half of 2008, Buffett was ranked by Forbes magazine as the richest man in the world with an estimated net worth of more than $62 billion.