Is it possible that the stock market could reach a point of “absolute zero”? A financially-oriented friend of mine says there’s reports saying if the market continues losing 100 pts a day over the next 90 days, such a catastrophic crash is possible - beyond repair.
Maybe I’m misunderstanding him.
Did anyone else read or hear something to this effect?
I’m open to any WAGs as well…
No. Assuming you mean the Dow-Jones Average, it would mean that 30 of the biggest companies in the country would all have to go bankrupt simultaneously (and Dow-Jones can add or drop a company from the index at will). The other indexes cover even more companies.
As long as companies remain solvent, their stock will have value. At a certain point, investors will begin to see the stocks as bargains and the collapse will end. Take a look at the great Crash of 1929 – prices eventually stabilized and began to rise.
If you take a close look, the NASDAQ and other indexes, as opposed to the DJIA are gaining slightly. the DJ is just high profile mroe or less because it has big names and big numbers.
What qualifies your friend to be considered “financially-oriented”?
Since the Dow is at around 8,700 (lets round up to 9,000), if it were to drop 100 points a day for the next 90 days than your friend is technically correct. The odds of that actually hapening, however, are so remote that they are not worth considering.
Another point to consider is that since earnings and cash flows aren’t all THAT bad, a lot of profitable companies are starting to have large dividend yields. If there’s no reason to believe that these companies are going to curtail their dividends, people will start buying when they figure the money will do at least as well as it would sitting in the bank, and they can be patient waiting for the stock to recover.
Dividends are definitely coming back into vogue.
On the DOW, GM’s and JPM’s dividend yields are currently over 4%, and EK is yielding over 6%. Many of them have yields over 3% right now.