UB expert calls stock market free fall a “price correction”


BUFFALO, N.Y. (WIVB) – If the turmoil on Wall Street is causing you to lose sleep over your 401k or IRA, the degree of your anxiety could depend on a few things such as, how much you are invested in the stock market, how diversified your portfolio is, and how close you are to retirement.

The free fall on China’s main stock market index led to a worldwide chain reaction, and by the time the selloff reached Wall Street Monday morning, it had turned into a tidal wave.

At the outset, the Dow Jones Industrial Average lost more than 1,000 points, which the index has done on a single day in its history, but the Dow came clawing back to about 100 points down, ending ended the day still off by nearly 600 points.

Ben Willis of Princeton Securities described the huge drop, “This is a repricing of the global stock markets.”

It is what the market calls a price correction–whenever stocks fall 10% or more from their high and UB School of Management Associate Professor Cristian Tiu said U.S. stocks’ last correction was 4 years ago.

They generally occur more often, said Tiu, “I mean I am surprised that people don’t worry a lot, I guess, when stock markets go up too fast too soon. But then they tend to worry a lot about when the markets fall too fast too soon.”

Adding to the market’s uncertainty, speculation over whether the Federal Reserve Board will raise interest rates for the first time in 9 years at its meeting in September.

Raising rates is a hedge against inflation, but with the Chinese devaluing their yuan and the dollar being strong against most foreign currencies, conventional wisdom would indicate the Fed might leave interest rates alone.

Professor Tiu says it is the fear of the unknown that seems to be feeding on itself.

“Then there is basically fear that feeds fear, and that is what creates the sell off that we are seeing these days.”

Following the investing principle of “buy low and sell high”, financial advisers say if you feel the market is bottoming out, now might be a good time to grab up some of those bargains.

There is also a silver lining to the dark cloud hanging over the market–low energy prices, which analysts predict will lead to lower electric and gas heating bills this winter.

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