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McEachern comments on stock market fluctuations
Asia's plummeting market had a direct impact in the United States last week, as the Dow Jones industrial average fell 550 points. Most world stock markets plunged further and faster on October 28 than they had at any time in recent years, responding to the previous day's declines in New York City. But the fall also led to the greatest single-day point gain ever, as the Dow Jones industrial average soared 337.17.
Despite such dramatic fluctuations, there is no reason to fear, says William McEachern, a professor of economics who is editor of The Connecticut Economy: A University of Connecticut Quarterly Review.
"Probably what's been going on in the last couple of weeks is relatively healthy," McEachern says. "Again it is reminding people that stocks are risky business and there are no guarantees."
The problem, he says, is that there has been such a run up in value that the question is how to sustain value.
"How do you keep the juggernaut going?" he says. "How do you feed the beast, so to speak? How do you keep people believing that these stocks are going to continue to climb? What sort of external event can come in and stimulate that kind of thinking?"
It was inevitable that the market would flatten out, McEachern says, since it has been rising so sharply.
"The market has capitalized or reflected the good news that has come about in the last several years," he says. "Once you have built that good news into prices, you need other and better good news to get those stocks to move even higher. At the same time, you open yourself to all the possible bad news that could come in."
So what does this mean for Connecticut's economy? McEachern believes the recent events on the stock market will have some effects here.
"Connecticut, with the highest per capita income in the nation, tends to hold a higher than average proportion of shares," he says, "so we'll probably see a cut in capital gains income if the market settles out, flattens out or even turns down some."