Credit freeze vs. a crappy day



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The Dow dropped 500 points on Wednesday…again. The downturn was due largely in part to the fact that many companies did not meet analyst earnings estimates—i.e., they lost money. The thing to keep in mind is that, even without the shitstorm brewing in the credit markets, many of these companies would have likely had similarly low earnings today as a result of a slowdown in the economy (read: people aren't buying anything). The difference between today's drop (the result of a slow economy) and previous plumets (the markets reacting out of fear of a freezing credit market) is analytically complex and exceedingly difficult to explain. So I thought it best to illustrate with pictures. The photo on the left represents traders reacting to a “crappy day” in the markets. The one on the right represents the reaction to the credit market crisis:

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