Where is the American Economy going?

          Well  the  cut  boosted  Ford’s  stock,  but  its  shares  did  not  rise  alone.  The  stock  markets  continued  their  three-week  recovery  with  the  18)NASDAQ  and  some  other  major  market  19)indices  20)rebounding  above  pre-attack  levels  near  the  end  of  the  week.  Did  the  markets  21)overreact?  Should  stocks  be  heading  higher?  Joining  us  with  some  answers  is  22)veteran  money  manager  and  economist  Hugh  Johnson  Chief  Investment  officer  at  First  Albany.
Journalist:  Hugh,  nice  to  see  you.
Hugh:  Nice  to  be  with  you,  Conswello.
Journalist:  You  first  of  all  in  23)hindsight,  did  the  markets  overreact  to  the  attacks  on  September  11?
Hugh:  I  think,  24)to  some  extent,  it  really  was  an  overreaction.  We  certainly  seemed  to  reach  an  emotional  extreme.  The  market  became  25)extraordinarily  26)undervalued  as  I  did  the  27)arithmetic,  as  much  as  almost  25  percent.  And  we  saw  lots  of  very  heavy  28)volume  a  very  sharp  29)decline  in  stock  prices  during  that  week  of  September  7,  so  to  some  extent,  there  was  certainly  some  not  only  reaction,  but  I  think  overreaction.  The  market  became  very,  very  undervalued.
Journalist:  So  why  do  you  think  the  market  appears  to  be  on  the  comeback  30)trail  right  now?
Hugh:  Well  I  think  the  most  important  thing  to  keep  in  mind  is  remember  is  that  you  know  what  counts  is  not  so  much  third  quarter  earnings  and  certainly  not  the  economic  numbers  like  the  retail  sales  numbers  for  the  month  of  September.  What  really  counts  is  not  so  much  where  we’ve  been  but  where  we’re  going.  What  counts  is  what’s  going  to  happen  in  the  first  and  second  quarters  of  next  year.  And  frankly,  with  all  of  that  31)stimulus  in  the  32)pipeline  in  the  form  of,  you  know,  33)monetary  ease,  lower  interest  rates,  34)fiscal  stimulus  from  Washington  in  the  form  of  greater  spending  as  well  as  tax  cuts.  The  case  for  a  recovery  in  the  first  part  of  next  year,  the  recovery  in  the  economy  and  earnings  is  extraordinarily  strong,  so  investors  are  starting  to  buy  stocks  in  anticipation  of  a  recovery  in  the  first  two  quarters  of  next  year.CE