So far stock prices in the United States have behaved like those rubberized posts in the middle of a two-way road: Knocked down, they bounce back up. Like the driver, alerted to his straying path, investors have moved on after each pothole in the market. Portfolios often emerged unharmed as stocks shifted higher.
We have no way of knowing if we are now seeing the end of a remarkable bull market. But there are several happy trends in the economy that justify, at least to some extent, the years of cheer on Wall Street.
For one thing, both inflation and unemployment remain low. As a result, the Federal Reserve has not needed to raise interest rates. Nor is it expected to any time soon. Low interest charges have been a great help to consumers borrowing money to buy houses, cars, or other goods.
Moreover, at last the typical worker is enjoying genuine pay hikes.
Real wages have risen for most workers in the past 18 months at a 2.6 percent per year rate. That reverses declines of 0.8 percent per year from 1989 to 1996.
The low-wage male worker in the bottom 20 percent did even better, getting a 4.1 percent gain at an annual rate in that period. Female workers in this bracket saw a 2.7 percent gain.
Productivity has resumed a respectable growth rate. So employers can pay such higher wages without seeing profits trimmed inordinately.
Many more Americans have money in stocks now than in the past. Mutual funds invested in stocks accounted for 21 percent of the overall market at the end of 1996, three times the 7 percent share they had in 1987 when the market lost 25 percent of its value in two October days.
Many such investors have never seen a real bear market, when prices drop and stay down for a long span.
Some observers wonder if these new investors will panic after a bad market drop and just get out. But a new Brookings Institution-Wharton School study indicates that "a repeat of the hair-raising events of 1987 is highly unlikely." Structural changes since that crash provide protection.