The rousing two-day rally in the Dow Jones Industrial Average of 452 points undoubtedly lifted the spirits of many bloodied investors, although yesterday’s tumble of more than 200 points may have put a damper on the optimism. And yesterday’s downturn may be just what’s needed.
One savvy Florida investment adviser, Michael Larson, contends that a scary, drastic, and painful action is needed to restore investor confidence and get them back into a sustained buying mood. That action is a broad-based selling panic — a vicious down day in the market in which the Dow dives maybe 500 to 1,000 points. “We need that kind of a decline to get everyone’s temperature up,” he says.
Obviously, such a plunge would be a killer for investors, who have already seen the Dow shed more than 3,200 points prior to a bit of a recovery since hitting a high last October 19 of 14,164.
Mr. Larson, a conspicuous figure in this column because of his accuracy in calling market downturns well before the rest of the Wall Street pack, singled out five ingredients — the most important being a selling panic — that he feels must occur before the current bleeding can be stopped.
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