Aversion to Risk Infects Investors

Jul 24, 2002

Historically, sharp declines in stocks have lured temporary buyers. However, recent sell-offs have only served to hasten investors’ exit plans, reports CNN/Money. In its 1,540-point plunge, the Dow fell 12 of the 16 trading days this month.

Investors have been withdrawing money from stock mutual funds at a nearly unprecedented pace. AMG Data Services reports outflows eight of the last nine weeks. In the week ended July 17 investors pulled $10.7 billion from funds — the second-worst week for mutual fund outflows on record. Shrinking portfolios are forcing many investors into a more conservative stance.

“In a nightmare scenario,” reports CNN/Money, “the decline in stocks provokes an aversion to risk across the board. Consumers, worried about their financial futures, pull back, while banks become increasingly unwilling to lend. The economy stalls and our low-inflation environment shifts into deflation; an overall decline in prices.”

Moderator Comment: How is the stock market’s dive affecting how publicly-traded retail and CPG companies do business? [George
Anderson – Moderator

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