Question: What’s the significance of the Dow dropping below 7,000?
Paul Solman: Just another number. To the extent that people focus on it, however, it can have the effect of increasing the anxiety over stock prices, and lead to more selling.
When financial advisors say, “Don’t look at your 401(k) statements too often” (or the Bloomberg ticker, ever), they mean: Don’t get caught up in the psychology of the moment.
In separate interviews today in Indiana, an economist and a laid-off factory worker both made the same point: The economy will rebound only when expectations do. At the moment, negative expectations are leading to negative consequences. Seeing the Dow fall below some seemingly salient number, however arbitrary, can add to negativity, and exacerbate it. FDR was right: We have nothing to fear but fear itself. Unfortunately, “fear itself” is not only frightening, but destructive.