Business

(WCCO) On Monday, the Dow closed down 300 points to end this first trading day of March below the 7,000-mark. That's the first time the Dow Industrials has been in that territory since October 28, 1997.

So it should come as no surprise, when you open up your 401(k) statement, the numbers are so alarming. One look at the Dow Jones Industrial Average chart will really capture the dive that investors have taken!

Sixteen months after peaking at its all-time high mark of just over 14,000, stocks have plunged to less than half their values. So what's the psychological effect on investors as we break these benchmarks?

Professor David Vang chairs the Finance Department at the University of St. Thomas' Opus College of Business. He said breaking through the Dow's 7,000 benchmark really doesn't affect the psyche of active traders.

However, Vang believes, "where it does have an impact would be in that segment of the population that isn't or doesn't want to read about their 401(k) every single day. This gives them a sort of mass media knock-on-the-head that, 'Oops, things have gone down quite a bit and I better see what's happened.'"

When asked if there are any signs of a bottom to the market, Vang said that's tough to predict. He points out that most recessions, historically, last an average of about 18 months.

There is, however, an indication that a lot more stock is being bought by corporate insiders. These are the CEOs, directors and senior management of a particular company. Typically, that means they're confident about their company's stock values and their firm's future prospects at a turn around, so they buy their own stock.

Another glimmer of hope revealed itself on Monday with consumer spending. The Commerce Department reported that after six straight months of decline, consumers actually spent slightly more money in January.

Vang believes it has to do with deals that were simply, irresistible

"In this particular case, I suppose, the story could be that because of so many months in a row of negative numbers that there's probably such buying opportunities out there that some consumers have decided we have to buy now because this is now a great deal," he said.

In fact, recessions have a way of wearing on people, to the point where consumers are just plain tired of sitting on their wallets. That's one of the main reasons that, historically, recessions rarely last longer than 18 months. Our homes need updating, and furniture and appliances will eventually wear out.

The 90-plus percent of Americans who haven't lost jobs tend to feel more confident and will eventually start spending again. After all, consumer spending is two-thirds of our nation's economy.

The small blip in spending last month may be contributing to a small increase in manufacturing activity. The Commerce Department reported a slight rise in the Institute for Supply Management (ISM) index in January.

However, Vang thinks the slight rise in the ISM is a reflection of low inventories.

"So there might have been some increase of replenishing inventory supplies that probably resulted in this immediate blip," he said.

The bottom line is that it took a long time to get us into this mess. It's going to take a long time to climb out.

And that's the general sense that appears to be dragging the Dow down. Everyone wants the recession to be over, but investors are betting it's going to drag on a lot longer than previously thought.

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