What Now, With The Dow?

By CBSNews.com staff CBSNews.com staff

September 2, 1998 / 10:22 AM EDT / CBS

What can you expect these days from the stock market?

Will the volatility continue and if so, how will that affect your strategy?

Some answers come from CBS 'This Morning' Contributors Ken and Daria Dolan.

Daria Dolan thinks the volatility isn't over yet. "My concern is, yesterday [Tuesday] we had a 500-point differential between the bottom and the top."

And if the stock market goes down, says Ken Dolan, we could see deflation. "Everybody knows inflation...the price of a loaf of bread goes up," he explains. "Deflation means prices go down; prices are down and interest rates are down. Not so good. It might lead to an economic slowdown, which is not good news. It's estimated for every $1 stock prices go down, America loses two to three cents worth of buying power."

But there are ways to take advantage of deflation, say the Dolans:

Don't buy big-ticket items now. The odds are, with fewer buyers chasing the prooducts, they'll have to lower the price to entice you to buy them.
Even if you just refinanced your mortgage a few months ago, you probably would have a chance to refinance again at a lower rate.
First-time buyers, as long as they are secure in their jobs, would find lower interest rates. If we see real deflation, we could see 3 percent, the long treasury bond yield that would be beneficial for borrowers.

Ken Dolan warns, however, there is a downside to deflation. Companies cannot raise prices, so they can't keep touch with their earning. The result may be layoffs.

"We tell all of our viewers all the time [to] learn stuff at work," says Ken. "Expand your abilities to do jobs. There is going to be a day when your job may be in jeopardy. If you've got the expertise and made the effort to learn more about your specialty, you might be able to save your job."

Daria says there won't be a bell ringing to tell you when the market has bottomed out, but there is something that can signal a reversal.

"What I would look for," she says, "is the historic dividend yield on the 500 stocks that make up the S&P. [It] has been 4.4 percent. It got down as low as 1.5 percent. It would need to get up in the 4 percent range again. You can track that in the business sections of a newspaper. You start seeing 4 percent, you might want to start buying stocks. At 5 percent, 6 percent: Bet the farm and buy everything you can lay your hands on."

The Dolans say, unless you know for certain that you have a long-term interest in this market, you shouldn't be in it.