Too Far Too Fast?

Chart of the Week for Jan 25-31, 2001

Some market pundits and the financial media have questioned the recent increase in stock prices. They point to Nasdaq’s 36% advance since its September low as evidence that prices have come too far too fast, and are due for a break. That is certainly a significant gain, but it’s also somewhat misleading. After the attacks, stocks immediately adjusted downward as investors considered the financial implications. Then, after assessing the environment, prices readjusted upward. This readjustment accounts for much of Nasdaq’s gain. Measuring performance from just before the attacks provides a better indication of how far prices have really advanced. Since September 10th, Nasdaq is up 15% — a nice run to be sure, but far less than the 36% increase from its low; and prices are now about where they were in August.

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