What a difference a few months make. Now in nearly every direction there is bad news and the prospect of more to come. The U.S. economy is slowing. Tech companies around the world are caught in a downward spiral of declining investment spending and lowered expectations for future growth. The news from the Mideast alone is enough to make a wary investor reflect on the good sense of owning 30-year Treasuries.
Uncertainty has some obvious consequences for the world economy.
Investors shorten the time horizon over which they are willing to project future profitability. That tends to compress price-earnings ratios, which means that the value of stocks tends to fall. The companies are making the same products and even making the same profits, but the predictability of those profits is less. During the bubble-headed optimism of the late 1990s, investors bought every technology in sight, and they seemed to have an almost infinite time horizon. In that atmosphere, companies achieved multibillion-dollar market capitalizations simply on the basis of an intriguing idea.