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The US Stock Market - Online Term Paper

The US Stock Market

As of February 24, 1997 the United States stock market has seen only two major crashes since the first seat on the New York Stock exchange was sold in 1850. Both the 1929 and the 1987 crashes turned the Dow Jones Industrial Average downward by almost 23% each. On the other hand, this market has witnessed many corrections along the way. A stock market correction is usually referred to as a downward movement of stock prices (measured by the indices) anywhere from a few percentage points to twenty percent; whereas, a market crash, therefore, would be any stock price decline greater than that. Note that the percentage changes assigned to these terms are not text book definitions but rather ...

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are worrying about what is in store for the market this year. Specifically, they are concerned whether or not the stock market will correct (or worse, crash) in 1997. In focusing on the possibility of a market correction or crash this year, some arguments for and against will be examined.
Currently, many people, including financial analysts, money managers and individual investors, believe the stock market is due for a correction. Some of them are supporting their predictions with the theory that the past is a good indicator for the future; in other words, history repeats itself. In 1995 and 1996 the stock market has returned 37% and 24% respectively. Theres a consensus developing that after two great years in the stock market, we can't possibly have a "third year of double-digit returns" (McGee C1). As this comment suggests, the DJIA has never had three consecutive years of double-digit returns and this may lead those who believe that history repeats to fear a market correction ...

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they have been effective in many cases, these cuts cannot continue forever. Some stock prices have already mildly suffered from this realization by investors. As another example American Express stock fell by 3% on the day that it announced that its fourth quarter earnings for 1996 grew by 17% and beat analyst expectations. The reason for the drop in stock price was because the companyšs revenues barely grew at all and the cause of the profit was money saved after 15,000 jobs were cut.

How all this could lead to a market correction is simple. According to this analysis earnings growth will not continue to be high as they as they have been since the beginning of the bull market in ...

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PAPER DETAILS

Added: 7/17/2008 02:38:59 PM
Category: Economics
Type: Premium Paper
Words: 1484
Pages: 6

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