1dayatatime said:
I noticed today that the dow was down again. How low can/will it get before we should all worry about serious reprecussions?
Sorry for the delay. I'm sick with some never-ending virus crud.
For most Americans, economic problems have less to do with the Dow and the markets than they do with more immediate concerns. Most people who do own stock do not trade on a moment-by-moment, day-by-day, or week-by-week strategy. They are in for the long term and realize that the losses they may be seeing now have little effect on how much much money or liquidity they have now. Hopefully, they are working with competent brokers and fund managers and the day-to-day work mostly falls on these professionals.
Instead, the problems for most Americans is more practical. Rising gas prices cut into budgets, diminishing spending in others areas (and thus depriving the economy of its main propulsion) and making it more difficult to pay other bills. Some folks are losing their homes, which is a financial crisis. Others are watching the worth of the house - the biggest potential source of long-term economic stability for many - decrease. If companies start getting nervous about consumer spending, lay-offs may occur, pushing many people to look for new careers.
To pull back, I don't think the market is going to "crash" or bottom out. By this I mean I don't think the markets are going to fall so far that the economy is wiped out. There are automated "brakes" on the major markets: computer problems that stop trading when things start to go down too fast. So the market would stop before it went into major freefall.
It's still possible for the NYSE, Nasdaq, and other markets and the major indicies like the Dow to drop significantly, companies to see their stock prices drop, the economy to slow, big lay-offs in the financial sector and elsewhere to occur. I don't know how much more rocky things will get. It seems Bernanke for all his amazing academic experience is still figuring out the public role to play with regard to market jitters. But if the US economy does enter a full recession please remember that most recessions (with only a very few major exceptions) are short-lived (i.e., less than a year). (A period of inflation is also possible as we're seeing some signs already, but at this point it seems like the major concern in recession.)
Hopefully, we'll find the bottom, some commonsense reforms - including those that recouple risk to reward - will be put in place, and things will pick up by the end of summer.