Many investors are wondering when the stock market will turn around after five volatile quarters and the terrorist attack of September 11. But in addition to this major event, more specific actions have influenced the stocks of specific companies.

For example, did the companies whose stock you hold lose or gain key customers? Did the public discover, or conversely, stop buying their products? Stock market activity is a reaction to many thousands of such events happening over and over again. Keep in mind, investing involves human behavior—the behaviors of the folks who work for the companies issuing the stock, their customers (the public), and your fellow investors in the stock market.

Here are some general guidelines on stock market behavior:

• Interest rates go down; for example, observe what usually happens after Alan Greenspan, head of the Federal Reserve, announces a cut or increase in interest rates.
• The economy grows; note how stock in companies that make consumer products tends to increase in value when unemployment drops.
• The market’s value increases, due to an increase in the real or anticipated value of a great number of companies.

The Market Tends To Go Down When:

• Interest rates go up.
• The economy stops growing—when unemployment increases and people stop buying goods. (Note the drop in consumer spending following the events of September 11.)
• The market’s value decreases, due to an actual or anticipated decrease in the profits of many companies.

Sectors Tend To Go Up When:

• The value of a market sector (a group of stocks representing companies in the same line of business—health care or technology, for example) increases, due to an increase in profits attributable to lower expenses and/or higher sales (increased demand for products/service lines).

Sectors Tend To Go Down When:

• A sector’s value decreases due to a decrease in the profits of representative companies attributable to higher expenses, and/or lower sales (decreased demand for products/service lines).

"The lesson learned from observing U.S. capital markets is that stock prices have risen over the long term. However, it’s important to note that periods of falling prices are also part of the investment process" observes Brian Tipple, Director of Research for Sirach Capital Management, a Seattle-based investment manager.

How To Cope With Market Declines
We like to believe that society has progressed. Recorded growth of the financial markets certainly suggests it. However, such growth hasn’t always traced a straight line through history. Recent tragedies underline how unpredictable life—including investing—can be.

"Sometimes the best strategy in difficult stock environments is to do nothing. Declining markets can influence investors to the point where emotions and the fear of losing more overtake rational thought. In times like these, take a deep breath, refocus on why you have invested in a particular company or fund, and look to the future for the better times that lie ahead," concludes Tipple.

The opinions expressed in this material are not necessarily those held by Frank Russell Company, its affiliates, subsidiaries, or distribution channels. While all material is deemed to be reliable, accuracy and completeness cannot be guaranteed. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity. Neither Russell nor its affiliates are responsible for investment decisions made with respect to such investments. For information regarding such investments, contact a financial professional.

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