Over this nine-week period the Dow Jones industrial average has fallen 2,333 points to the 8,000 mark, losing 22.5 percent of its value. The decline has now wiped out more points than were in the total index in January 1989. The Standard & Poor’s 400 index is down almost 45 percent from its highs two years ago, and the Nasdaq is off nearly 75 percent. In fact, some $7.7 trillion in paper values have been lost since the market peaked in March 2000. Since then the Dow Jones has declined by 31.6 percent.

The stock market decline of 14.5 percent from July 8-19 was "its worst two weeks since the 1987 crash," reported the New York Times.

"The crash of 2002: Stocks’ four-month slide has left investors battered and bloodied. How bad will it get," was the headline of a story by CNN/Money July 22, one of many such reports appearing in the big-business media. "Ten trading days, 1,360 points off the Dow. Let’s start calling the ‘sell off’ what it is. Let’s call it a panic. Let’s call it a crash," the article stated.

"There hasn’t been any news in the last 12 weeks that has made anybody feel confident," noted Thomas McManus, the equity strategist at Banc of America Securities. "You never know when it’s going to be over," stated Dexter Williams, who works in risk management on Wall Street. "It’s going to take a long time to restore investor confidence."

Compounding this problem is the growing number of financial scandals that have involved the reporting of billions of dollars in illusory earnings by some major companies that were prominent players in the stock market boom of the 1990s.

The latest example is WorldCom, a Mississippi-based telecommunications giant, which admitted in June that it had falsely converted operating expenses into capital costs, artificially boosting its income by $3.8 billion. On July 21 the company filed for bankruptcy, becoming the largest company in U.S. history to do so. WorldCom, with $107 billion in assets, eclipses Enron, which with $63 billion in assets filed its petition for bankruptcy in December. More than half of the 10 largest bankruptcies since 1980 have occurred in the last 18 months.

The stock market expansion through the 1990s was built on a speculative binge; today no one knows how far it will fall. Because of declining corporate profit rates and lack of sources of solid investment in industry, capitalist investors poured their money into gambling on the stock market rather than into expanding productive capacity equipment in the plants. The rising stock prices, which more and more became divorced from the actual value of these companies, had expanded into greater balloons of debt. "Especially the technology sector," noted the Times, "had become a bubble" that sooner or later had to burst.

One example of the declining confidence by investors in the stock market is the stepped-up pace at which money has been flowing out of stock mutual funds. According to AMG Data Services, there were net outflows of $18.5 billion from stock funds just over the first three weeks of July, following an $11.1 billion outflow in June. "If investors continue to pull money out of funds," reported the Times, "they will have to sell more stocks to meet the demand," further fueling the market’s decline.

Of growing concern to economists is the impact the stock market fall will have on consumer spending, especially as more companies announce downsizing measures and layoffs. Even before declaring bankruptcy, WorldCom, for example, had announced the layoff of 17,000 people, one-quarter of its total workforce.

"While corporate spending has been nonexistent for months," the Times noted, "consumers have kept their wallets open." But as "consumers recognize the extent to which the falling stock market has decimated their retirement accounts or their children’s college plans, their spending may come to a halt."

Economists at Goldman Sachs, predict that the weakness in consumer spending will curb economic growth not only for the remainder of this year, but well into 2003. Commenting further on this development, Richard Hastings, chief economist at Cyber Business Credit, a retail advisory firm in New York, noted that this could "impact aggregate demand in a way that has not been seen since the 1930s."

A declining U.S. stock market affects markets around the world. Major European indexes are down more than the 21 percent this year.
 
 
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