For parents and students counting on their portfolio gains to cover college tuition bills, stock market declines in recent weeks might leave many of them in a jam.
When the Dow Jones industrial average took a 299.43 point nose dive Tuesday, analysts and economists theorized on the causes: the Clinton-Lewinsky debacle, Federal Reserve Board Chairman Alan Greenspan’s anti-inflation comments two weeks ago and the continuing economic deterioration of East Asia.
Even with two positive days on Wall Street since Tuesday’s backslide, investors are unsure the record-breaking bull market will continue to reward them with the generous gains they’ve grown accustomed to.
“Say that your father and mother have been saving and they have to liquidate with a loss. That’s bad,” said John Kareken, professor emeritus of economics and former consultant to the Treasury Department and Federal Reserve.
With the whole market falling, Kareken said, there isn’t much a person can do unless their stocks are up and they have a lot of profits to take.
That isn’t a luxury all investors have, especially those heavily invested in poorly performing, small cap stocks — those related to smaller companies with lower-priced and less widely held stocks. In fact, many are afraid the recent market shivers are signs of more serious problems.
“What we’re seeing here is bigger than just a few stocks leading the market down, or a news event,” said Dan Mathison, lead trader at New York City-based D.E. Shaw Securities. “We’re seeing sellers across the board.”
Despite widespread selling and a general case of market jitters, most analysts are sticking to their guns, telling their clients to stick in it for the long haul.
Abby Cohen, an influential market strategist at Goldman Sachs, was credited with almost single-handedly turning the market around Wednesday. She sent a note to her institutional clients saying “stocks are trading at undervalued levels,” a clear-cut sign that now is a good time to buy.
Another analyst, Brian Belsky at Dougherty Summer Securities in Minneapolis, said the problems are only short term. “I think more than anything (Tuesday’s drop is) a knee-jerk panic reaction to what the market has been going through in the last few weeks.”
Regardless of opinions, economic indicators still reflect a strong economy: Interest rates are low, unemployment is nil and most market averages are riding along in positive territory for the year. However, these good signs are little consolation for parents and students planning for shorter-term college costs.
For those who have to sell their stocks to cover costs like the Summer Session II bills due Aug. 12, planners advise selling selectively. Slimming about 10 percent is favorable to dumping everything in fear of future losses.
Strategists say in context of other market losses, Tuesday’s 3.4 percent loss pales in comparison to the 1987 loss of 22 percent. And, until the Dow registers a loss of more than 10 percent, it won’t officially qualify as the much-anticipated market correction.
“Whenever it moves and sways in any direction up or down, it’s probably going to be a short-lived event, said Belsky. “I think it’s a matter of days or hours until we see a significant bounce back up.”