shadow_tr

Economy May Rebound Quickly

December 2, 2001

Mark Miester
Phone: 865-5714

The horrifying events of Sept. 11 battered an already bruised economy and stock market and sent many investors running for cover. But according to Peter Ricchiuti, assistant dean at the A. B. Freeman School of Business, the economic outlook is not as grave as it may appear.

"What Sept. 11 did is shift us from a U-shaped bottom to a V-shaped bottom," says Ricchiuti. "In other words, we're going to go into a recession faster and harder, but I think we'll actually come out of it faster."

Ricchiuti, a nationally known commentator on the stock market and director of the Freeman School's Burkenroad Reports stock-analysis program, spoke at a campus teach-in last month about the nation's economic outlook in the wake of the terrorist attacks.

Ricchiuti bases his optimism on both the cyclical nature of the market and measures taken by the government in the wake of Sept. 11. In October, the Federal Reserve cut short-term interest rates by a half-point to 2.5 percent, bringing it to its lowest level in 39 years, and the House began considering a $100 billion package of tax cuts to businesses designed to help pull the country out of recession. There's all this stimulus into the economy, Ricchiuti says.

"All the things the federal government is doing right now are just going to speed up the recovery. And I think the rebound is going to be better than people think. For investors, the message, as difficult as it might seem to be, is invest, invest, invest. When you look at earnings and current interest rates, the market is cheaper than any time I've seen in the last 15 years," Ricchiuti says.

"I don't think it's a time to get out. I think it's time to get in. A lot of people are saying I'll start investing when we get out of this recession, but that's too late for stock prices. You'll pay twice today's prices if you wait till the actual recovery is already here. You've got to be kind of a contrarian."

Ricchiuti adds that the reverberations in the stock market from the terrorist attacks followed a pattern of previous national crises such as the Persian Gulf War, the assassination of President Kennedy and the Cuban Missile Crisis.

"What you see is stocks take somewhere between a two and nine percent drop the first couple of days," he says. "We fell seven percent the first day, so we were right in that range. But from that bottom point, if you look three months later, each time the market was up over 20 percent, so a lot of times it's like a catharsis."

Ricchiuti notes that by mid-October the stock market had already regained its post-Sept. 11 losses. As far as what types of stocks investors should be looking for, Ricchiuti cautions against tying one's investments too closely to current events.

"My assistant's 14-year-old son e-mailed me last week wanting to know who made the antibiotics used to fight anthrax," Ricchiuti says. "I think the opportunities that were created were stock prices declining and the fact that its forced the Fed to lower interest rates even more. Instead of running around trying to find the next anthrax antibiotic, you've got to find good companies that you want to stay with and be a long-term investor."

One consequence of the attacks that may end up benefiting Louisiana, Ricchiuti says, is a reevaluation in the nation's energy policy. "This has to be a wakeup call that we have to do something about energy dependence," Ricchiuti says. "One part of decreasing that dependence might be a renewed emphasis on the production of natural gas. Louisiana is the largest natural gas producer in the country, so I think that might really benefit us."

Citation information:

Page accessed: Monday, April 21, 2014
Page URL: http://tulane.edu/news/releases/archive/2001/economy_may_rebound_quickly.cfm

Tulane University, New Orleans, LA 70118 504-865-5000 website@tulane.edu