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Dow Posts Gain

Mil Arcega

June 24, 2013

Global markets were mixed Friday after a turbulent week that saw the biggest one-day sell off on Wall Street in more than a year. The stock plunge was blamed partly on news that the U.S. central bank could slow its efforts to stimulate the recovering U.S. economy - and concerns about a slowdown in China. But some analysts say the global selling spree was an overreaction by investors who have grown accustomed to easy money policies aimed at kickstarting the U.S. economy.

If the U.S. economic recovery is really gaining traction, as Fed Chief Ben Bernanke said Wednesday, then why did the Dow Jones index plunge more than 350 points on Thursday? Equities trader Jonathan Corpina said it’s because a healthier economy means less help from the U.S. central bank.

“Our economy is getting better, and now it’s time for us to see how we can do it on our own,” said Corpina.

The Federal Reserve has been buying $85 billion in securities every month to keep long-term interest rates low - making it easier for businesses to borrow. Some say the monetary stimulus has boosted home prices and helped reduce unemployment.

Economics professor Steven Kyle, at Cornell University, has his doubts. He spoke to VOA via Skype.

“We still haven’t seen [house] prices come back to anywhere like we’d like to see, and there are still millions of mortgages that are underwater [homes worth less than the mortgage]. And on the employment front, we are still in pretty bad shape. The unemployment rate has come down, but that’s more because people are leaving the labor force than it is because lots of them are getting jobs,” he said.

The Fed has said it would gradually reduce bond purchases as the economy strengthens and unemployment declines. Meantime, financial markets have benefited greatly. Despite fears of a Fed pullback and worries about China’s slowing economy, market economist Max Wolff says there’s no reason to panic.

I think all-in stocks probably turn in a pretty decent year. But, I mean I've been on the record for a while saying this: I think we probably reached our maximum in April or May, I don't expect us to be above that in a meaningful long-term sense at year-end," said Wolff.

Cornell professor Steven Kyle says investors overreacted. “I do think it’s a little bit overblown, but the fact of the matter is, those guys like to be the first one out the door whenever there’s a change in the market.”

European stocks were down, while Asian and U.S. markets were mixed on Friday as the dollar gained strength and bond yields rose higher. Despite choppy trading on Wall Street - the Dow settled into positive territory, in time for the closing bell.

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