Updated 2/10/09: Market swings shouldn't panic investors

February 10, 2009

DALLAS —American stock markets faced a sharp sell-off Tuesday as it reacted negatively to the Obama Administration’s proposal to prop up ailing banks. The proposal would spend $500 billion to buy up bad assets from troubled banks. The markets fell as much as 4% at midday. The Dow Jones Industrial Average fell 382.39 points (4.62%), to close below 8,000. The S&P 500 was off almost 5% and the Nasdaq was down 4.2%.

Treasury Secretary Tim Geithner announced the plan Tuesday morning to help spur banks to lend again. The credit markets remain tight despite several attempted interventions by the Federal Government since October. Economists believe the current recession’s effects could be mitigated if banks would begin lending to businesses and individuals again.

While economic news was generally bleak Tuesday — General Motors announced that it would eliminate 10,000 salaried jobs in 2009 and wholesale inventories dropped by their largest amount in almost 17 years — there were also a few bright spots, including Intel’s announcement that it would spend $7 billion over the next two years to upgrade its U.S. factories.

While recent market performance may be confusing for stock and stock mutual fund investors, it’s important for long-term investors to rely on their investment strategies, and not make decisions based on short-term market changes, good or bad.

Read more about how investors should respond to this volatile market.