U.S. unemployment is stuck above 9 percent and economic growth is stalled, with gross domestic product rising less than 1 percent in 2011. Now Standard & Poor’s has downgraded the U.S. credit rating and markets all over the world seemed to react with knee-jerk panic. Many investors are worried and wondering, is now the time to sell?
Burton Malkiel, professor emeritus of economics at Princeton University and author of A Random Walk Down Wall Street, does not believe so. In a concise, detailed article for the Wall Street Journal, Malkiel outlined several reasons for “optimism that in the long run we will see higher, not lower, market valuations.” Among his reasons are that stock prices today are low relative to historical precedent, that large U.S. multinational corporations continue to grow in emerging world markets, and household debt-to-income ratios have improved considerably since 2008 (though they still have a long way to go).
While he concedes that the “headwinds restraining the economy are many,” Malkiel also stresses that “this is still the most flexible and innovative economy in the world.” And he advises investors to stay the course.