| Lummer's Logic |
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| The Markets Reopen
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By Scott Lummer
Chief Investment Officer, mPower |
Sept. 17, 2001
The stock market was back in action
Sept. 17 for the first time since the terrorist attacks of Sept. 11. As expected, stocks
ended the day down considerably. The decline was in line with those experienced by many
Asian and European markets last week. Not surprisingly, stocks of airlines and insurance
companies were particularly affected. Defense, mining, and cellular stocks performed well.
Despite the decline in stock values,
there was good economic news for investors. The Federal Reserve cut interest rates by 0.5
percent. Many large companies announced programs to repurchase their shares in the market,
which should bolster demand for equities.
The main question many long-term
investors may have, though, is whether they should take any action with respect to their
investment portfolios. The answer is no. Last week I wrote that the market would likely
incur a sharp decline when trading resumed and that there would be a great deal of
volatility. Indeed, that has happened. The Dow Jones Industrial Average closed at 8,921 on
Monday, a decline of 7.1 percent. Most of the downturn occurred during the first hour of
trading, when the market fell by over 6 percent. The broader market was also down, with
the S&P 500 falling by 4.8 percent and the NASDAQ declining by 6.8 percent.
However, I know of no analyst who
believes that the declines will continue over a long-term investment time horizon. We will
see continued wide swings in the market over the next few weeks. Some of those swings will
be downward, while others will be market gains. But long-term investors must remember they
are investing over the long run.
You must ask yourself whether you
really believe that at the point in time when you will need your investment proceeds,
presumably when you retire, the economy will be affected by the events of the past week.
My strong belief is that it will not, unless you are planning to retire in the next few
months. We will forever be affected by the personal tragedy of last week. The
international political landscape may have been permanently altered. But within the next
few months, not years, the economic shocks will have worn off. Confidence in the
transportation system will have been restored. Insurance claims will have been settled.
And we will go back to being what we were before this calamity happened — the most
impressive economic machine that the world has witnessed.
Some of you have written to me saying
that it is the patriotic duty of Americans to keep investing in the stock market. Indeed,
that may be true. But a continued long-term investment in stocks is also part of your duty
to your financial future.
 Lummer's Logic Archives
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does not constitute any tax, investment or legal advice. Consult your financial, tax or
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