Is the "New Economy" coming back?

> What about the mom and pop that had a nest
> egg for their retirement of
> $100,000 in the stock market a year ago and
> it's now $40,000. As they are
> looking for a "positive outcome"
> it goes to $10,000 or even lower.

Big falls in the stockmarket happen from time to time when the market is overvalued. There is a floor on how far it can fall, however.

Stocks, after all, are just claims on ownership in real businesses. Let's suppose you have a business earnings $100M per year, and in 2000 it's in the market at $2,000M. Perhaps that's too high, and it drops to $1,000M, a huge 50% drop. While that's huge, it would never drop to something like $500M without a change in the underlying business fundamentals, because if it did, a large investor or group of investors could just buy the company and realise those cash flows themselves for a high return.

So, unless you believe that the fundamental cash flows / earnings underpinning all US stocks is set for a plunge, then there is a "floor" that stocks can go to.

- Thomas.