Dow Extends Losses, But ETF Investors Should Stick to Plan

October 09, 2008 at 2:00 pm by Tom Lydon

Dow Jones Industrial Average It’s ugly out there for exchange traded fund (ETF) investors, but we have always said and will reiterate that while the temptation is to panic, it’s wise for investors to keep their cool.

These are uncertain times - no one really knows if this crisis is going to end next week, or next year. The only thing you can control is your own reaction, and resist the urge to make decisions out of fear.

Please re-read our Q&A, as well as an interview we recently did in which we address the crisis and what investors should be doing right now.

Today marked the seventh straight day of losses for the Dow Jones Industrial Average, and investor fear is weighing on the markets. Some economists say that a recession is likely.

A survey conducted by the Wall Street Journal finds that on average, the 52 economists surveyed agree that gross domestic product (GDP) is going to contract in the third and fourth quarters, as well as in the fourth quarter of 2009.

If these predictions come true, it will be the first time that U.S. GDP has contracted for three consecutive quarters in more than 50 years. The economists also increased the odds of a recession in the next 12 months at 89% - up starkly from 60% in last month’s survey, reports Phil Izzo for the Wall Street Journal.

The Dow dropped below 8,700 points, extending the losing streak that has seen it lose 15%. The index is down 35% from its record a year ago.

The decline was led by shares of automaker General Motors (GM), which fell today to their lowest level since 1950, after they reported that European car sales have fallen for the first nine months of this year, report David Bailey for Reuters. Forecasters J.D. Power and Associates and Global Insight lowered their expectations for the auto sector for this year, and predicted a slow recovery.

GM is the largest U.S.-based automaker.

Tight credit is spreading throughout the markets and exacerbating the downturn. Companies are finding it hard to secure financing, constraining business spending. Unemployment stands at 6.1%, while economists expect an average of 74,000 job losses a month for the next 12 months.

The Volatility Index (VIX) hit a new record today, topping 60. The index measures the cost of using options as insurance against declines in the S&P 500. The S&P today dropped below its level from 10 years ago, erasing a decade of gains, and then some.

S&P 500