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Article posted on 08/11/10
Author: Mark Rosen

Dow Jones Drops 265 Points

The Dow Jones Industrial average fell 265 points today, to just under 10,400. The Federal Reserve announced yesterday plans to buy more Treasury Bonds to try to stimulate the economy. In good times, moves like these can have a boosting effect on the stock market. But in uncertain times like these, they can have the opposite effect. But analysts are optimistic about the future nonetheless.

The chief reason for the positive outlook is that the market is not in as bad of shape as it seems. The market has had 11 days this year, including today, where the market has fallen 200 points or more. In 2009, there were a total of 15 such days, so we are definitely on pace to break that mark. In 2008, however, the market lost 200 points on 49 days. Another reason for the optimistic outlook is that we've had almost as many days (8) where the market has gained 200 or more points this year as down days. Overall, the market is down less than one percent for the year.

So when examining the whole picture, today's sizable drop is not as ominous a sign as it may appear to be. The Fed's move yesterday would appear to be nothing more than window dressing, and today's drop may be a message from investors that they are aware of that. The Fed plans to use federal money to buy debt issued by the Treasury. So,in effect, we are using our own money to buy our own debt. The hope is that the move should stimulate the economy, but in reality it is nothing more than re-shuffling the deck, and in the end will not have as much of an impact as a new stimulus package or cutting taxes would have.

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