Black Tuesday of 2007
Stocks fell sharply followed by the 9 percent drop in the Shanghai’s benchmark index one day before the U.S. stock market opened. The DJIA dropped 416, or 3.3%, to 12,216, the S&P 500 fell 50, or 3.47%, to 1,399, and the tech heavy Nasdaq fell 96 points, or 3.86%, to 2,407. It was the worst decline since the Sept. 11th attacks. The world markets also fell down sharply. Japan’s Nikkei 225 index fell down more than 500 pints today followed by the modest decline yesterday. Other markets, such as Hong Kong, Australia, the Philippines, all tumbled more than 3 percent.
This biggest decline in the world markets shows the slow growth in the world economy, especially in China and the United States. China, one of the fast growing economies, is still on the way to catch up the biggest economy, the United States. However, it seems investors started to see the slow growth in the China’s economy even though it still grew double digits last year and this year seems to be as well. Why the stock markets go down then? Easy, investors always care about growth, growth, and then growth. They always see companies’ earnings one, or two, or three years, or even ten years advance. Remember, buying a stock is a bet on the future, not the past!
The U.S. economy is the same. Investors started to see the slow growth in economy. They see no more double digit growth in the corporate earnings this year. By the time, the Federal Reserve, or the Fed, worries about inflation. If the recession and the inflation go on at the same time, it will really be a bad time in coming years. In addition, the world markets are really becoming global. Like this time, if the Chinese markets are down, and then the world markets are down. There is no free lunch in global diversification. Many analysts say the globalization is good, but now at least it is not good for stock markets.
Again from last newsletters, diversification is having different names in your portfolio. Having all the eggs in one basket is dangerous. You can not have all tech names in your portfolio, so it is the same: you can not have all the U.S. stocks in. How the global economy is affecting to portfolios? It is now more difficult to invest globally. We are now facing the new global economy, which economists are still working on. Some of you have taken Macro & Micro Economic Analysis courses in your colleges, but not enough to master all about the economics. Now we need to learn the global economy. That is very difficult, but it is fun to learn and research new economy!
I believe today’s big decline in the U.S. market is overdone and the stock market eventually go back to the near record-high level (DJIA is at record high, but S&P 500 and Nasdaq are at six year high) even though we might still see some downturn next few days until all the sellers disappear. Thus, I would like to be a buyer here and be buying more shares in the next few days and also stepping into new names. This is the way to make money and I like to see the U.S. economy is landing softly, like airplanes, and by the end of the year, I believe the stock market is in the record-high as the Fed starts to decline the interest rates by the new school year begins in fall.
Stocks fell sharply followed by the 9 percent drop in the Shanghai’s benchmark index one day before the U.S. stock market opened. The DJIA dropped 416, or 3.3%, to 12,216, the S&P 500 fell 50, or 3.47%, to 1,399, and the tech heavy Nasdaq fell 96 points, or 3.86%, to 2,407. It was the worst decline since the Sept. 11th attacks. The world markets also fell down sharply. Japan’s Nikkei 225 index fell down more than 500 pints today followed by the modest decline yesterday. Other markets, such as Hong Kong, Australia, the Philippines, all tumbled more than 3 percent.
This biggest decline in the world markets shows the slow growth in the world economy, especially in China and the United States. China, one of the fast growing economies, is still on the way to catch up the biggest economy, the United States. However, it seems investors started to see the slow growth in the China’s economy even though it still grew double digits last year and this year seems to be as well. Why the stock markets go down then? Easy, investors always care about growth, growth, and then growth. They always see companies’ earnings one, or two, or three years, or even ten years advance. Remember, buying a stock is a bet on the future, not the past!
The U.S. economy is the same. Investors started to see the slow growth in economy. They see no more double digit growth in the corporate earnings this year. By the time, the Federal Reserve, or the Fed, worries about inflation. If the recession and the inflation go on at the same time, it will really be a bad time in coming years. In addition, the world markets are really becoming global. Like this time, if the Chinese markets are down, and then the world markets are down. There is no free lunch in global diversification. Many analysts say the globalization is good, but now at least it is not good for stock markets.
Again from last newsletters, diversification is having different names in your portfolio. Having all the eggs in one basket is dangerous. You can not have all tech names in your portfolio, so it is the same: you can not have all the U.S. stocks in. How the global economy is affecting to portfolios? It is now more difficult to invest globally. We are now facing the new global economy, which economists are still working on. Some of you have taken Macro & Micro Economic Analysis courses in your colleges, but not enough to master all about the economics. Now we need to learn the global economy. That is very difficult, but it is fun to learn and research new economy!
I believe today’s big decline in the U.S. market is overdone and the stock market eventually go back to the near record-high level (DJIA is at record high, but S&P 500 and Nasdaq are at six year high) even though we might still see some downturn next few days until all the sellers disappear. Thus, I would like to be a buyer here and be buying more shares in the next few days and also stepping into new names. This is the way to make money and I like to see the U.S. economy is landing softly, like airplanes, and by the end of the year, I believe the stock market is in the record-high as the Fed starts to decline the interest rates by the new school year begins in fall.
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