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August 17, 2007

Stock market gyrations

Recently the stock market, by one index, hit a record high that was followed within a week by a 300-point sell-off. N.C. State University economist Mike Walden discusses why investors' attitudes can change so dramatically in such a short period of time.

"If I had the answer to that, we would be on an island somewhere with our own private beach, because this is a question that students of the stock market have really been asking ever since stock trading began," says Dr. Walden, a professor of agricultural and resource economics.

"I guess the best answer that I can give is that on any given day there will always be a combination of positive and negative factors in the economy, and investors will look at that collection of positives and negatives," he adds. "On some days, they will put the emphasis on the positive, and the market will go up; on other days they will put more emphasis on the negative and the market will go down.

"And that's what makes predicting the stock market so very difficult, because you are not just dealing with information but you are also dealing with how that information is interpreted by many, many people.

"Now, that said," he adds, "we have had a good run in the stock market this year. The stock market has gone up in a fairly healthy way for the first half of the year. And many analysts thought that some pullback was expected. That is, oftentimes what you have is the market going up and sort of overreaching -– it's gone too high and needs to pull back.

"But, again, I think the best strategy for the average investor is always to take these ups and downs in stride," he concludes, "and invest for the long run."

Posted by deeshore at August 17, 2007 08:00 AM