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July 07, 2005

Prevailing Over Evil

Karyn McCormack

"We live in a world gone mad," wrote Ed Yardeni, chief investment strategist at Oak Associates, in this morning's email.

Dr. Ed went on to say: "Just when we think that the forces of civilization are prevailing over the forces of evil and darkness, we get hit by an event like the one this morning in London. Nevertheless, the civilized people of the world will prevail as we did after 9/11 and the Madrid bombings."

I agree with Dr. Ed. As my colleague Amey points out, stocks staged a nice comeback after nosediving in early trading.

Sam Stovall, chief investment strategist for Standard & Poor's, wrote these encouraging stats today:

"I've just reviewed data from five unanticipated market stock days -- September 11, Iraq's invasion of Kuwait on Aug. 20, 1990, the Kennedy assassination on Nov. 22, 1963, the Cuban missile crisis on Oct. 20, 1962, and the attack on Pearl Harbor on Dec. 7, 1941 -- along with the S&P 500 price performances after the first day of trading since the event, the number of days it took the 500 to bottom, its total decline in price, and finally, by the number of days it took until the S&P 500 closed above the level prior to the shock event.

Shocks take a toll on investors' nerves, as seen in the average 3.2% one-day decline in price following the five events. Yet the number of days the market was in free-fall was encouragingly short at only five days (excluding Pearl Harbor, the average was four days), with the total price decline before the market sought a near-term plateau being 6%. The most surprising statistic, in our opinion, was that the S&P 500 was trading at a new high only an average of 62 days later (and an incredible 14 days without Pearl Harbor)."

I do worry about more attacks, but I'm not changing my portfolio (what little of it I have). So heed the advice of Sam Stovall, Ed Yardeni, and the pros that have watched the markets a lot longer than many of us. Says Stovall:

"While it would be irresponsible for us or anyone to encourage profiting from another's misfortune, it would also be inappropriate for financial professionals not to remind investors that while negative news events have historically triggered short-term sell-offs, the resiliency of America's fundamental and governmental strength have prevailed."

03:59 PM


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These events, when they occur, are very troubling. Not only sadness for those involved, but then worry over how this might affect our investments in an ever increasing world marketplace.

Once concept that helps me keep my sanity is one presented in "The Next Great Bubble Boom" by Harry Dent, Jr. He points out that terrible things have always happened and will likely continue. But demographics are the largest movers of markets. He is predicting the DOW to be at 40,000 by the end of the decade. Even if he is half right, I will be very happy.

My thoughts and prayers are with those in London who have lost loved ones.


Posted by: David Porter at July 10, 2005 02:25 PM

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