This week's turmoil in stock markets from Bonn to Beijing reflects one of the basic truths of the late 20th century: World business and money markets are interconnected as never before.
A web of modern communications and cross-investments can now ripple economic problems - or progress - around the globe in a day. Investors realize and react to the fact that a slowdown in Thailand will affect Japan and China, which in turn can affect the fate of American corporations that sell to Asia and other parts of the world.
With the end of the cold war, this impersonal economic discipline has become one of the most powerful geopolitical forces facing national leaders. As this week's roller-coaster ride on the Dow Jones Industrial Average shows, the US is not immune, despite underlying strength of the American economy.
"In that sense, there are real 'fundamentals' involved here" that go beyond just the strength or weakness of the US stock market, says Michael Metz, chief strategist at Oppenheimer & Co., a New York investment company.
This doesn't mean that US stocks, and the tens of millions of average citizens who own them, are now completely at the mercy of foreign events. The US economy remains a powerful engine.
It does mean that events elsewhere can magnify the impact of domestic financial trends. Many analysts believe, for instance, that Monday's sell-off in the Dow was a market "correction" that was waiting to happen, and that stock troubles in Hong Kong and elsewhere were almost an excuse for the drop, as well as a cause.
Much of the selling in the US market was "psychological," says Philip Rettew, senior market technician at investment house Merrill Lynch, as institutional and professional investors sought to protect their profits so far this year.
On Oct. 27, the Dow Jones Industrial Average took its biggest one-day point drop ever. The 554-point plunge brought a 7 percent reduction in the index's value and two suspensions of trading by "circuit breaker" mechanisms adopted after the October 1987 crash.
Where next for US stocks?
The question around water coolers across the country now is: So where will the Dow end up? If nothing else, it appears the US stock market's long bull summer is over, replaced by an autumn of instability.
Mr. Rettew believes it will take the US market a week or so to settle, but he sees support for the Dow around 7200 and again at 6400. If the market did tumble to 6400, that would constitute a correction of slightly more than 20 percent, down from its peak of 8259.31 on Aug. 6.
A 20 percent downturn, while severe, would not be unusual in terms of market history. And several analysts, notably David Shulman, chief strategist at Salomon Brothers in New York, have forecast such a correction. But the market may not drop that far, Rettew says.
For its part, Standard & Poor's DRI, an economic consulting firm in Lexington, Mass., had recently calculated that stocks were overvalued by about 10 percent. The Oct. 27 plunge took the Dow back to where it should be, in terms of economic fundamentals, such as profit outlooks, says DRI economist Ezra Greenberg.
"Nothing has changed since last Wednesday [Oct. 22] in US economic fundamentals," he says.
But Mr. Greenberg cautions that market slumps can develop a mind of their own. DRI has also laid out a gloomy scenario, where US stocks tumble 18 percent in value. If this were combined with continued weakness in Southeast Asia, a feeble recovery in Europe and Japan, and a disturbance in the Middle East, it could bring a mild recession next year, says DRI.
In the face of a cloudy economic outlook, what's the lone investor to do? Individuals, to this point have seemed largely unfazed by the Dow's blips, but that does not mean they aren't looking to adjust portfolios.
Mr. Metz of Oppenheimer believes investors should now look at bonds. A number of prominent market players, including legendary stock-pickers Warren Buffett and John Templeton, have been touting bonds since July, especially in US treasury issues.
Other analysts think now may be a good time to snap up some stock bargains. Al Goldman, chief economist at the investment house A.G. Edwards & Sons in St. Louis, believes the stock market has overreacted to turmoil abroad and that investors should be looking at "good old Motherhood blue-chip stocks" along with some bonds.
Greg Smith, a market strategist at investment house Prudential Securities, likes bonds and real estate investment trusts, or REITs. And Robert Barbera, chief economist at Hoenig & Co., says a little prudence may also be in order.
Now may be "an opportunity to hold some cash and let the dust settle" before reinvesting, Mr. Barbera says.
Roots in currency woes
And dust there likely will be. Problems in the rest of the world will likely continue, particularly in Asia.
That's where the roots of the recent turmoil lie. Last July, weakness in Thailand's currency started to batter neighboring economies. This unleashed a wave of currency speculation which finally hit the strongest market in the region, Hong Kong, on Oct. 22.
"It's a global marketplace, and when you see Hong Kong fall so badly - and remember this is a pretty developed place - other markets take note," says Richard Verin, head of equities trading at CS First Boston in Hong Kong.
Mr. Verin and other local analysts hope that the Hong Kong market is close to bottoming out. But what worries them - and their US counterparts - is the possibility Hong Kong's instability could spread to Japan and China.
If that happens, it could cause big trouble for the US. Japan and China are huge trading partners for US exporters, and almost 30 percent of US exports go to Asia. If this market dries up, workers from Oregon to Virginia might feel the pinch.
"Asia has been going down for a period of months now, and the US thought it could be insulated," points out Verin.
Analysts note a possible silver lining, however: low interest rates. The Federal Reserve had been expected to raise rates when it meets Nov. 12, but the latest events could bring a change of heart.