Burton Malkiel, professor emeritus of economics at Princeton University and acclaimed author of “A Random Walk Down Wall Street,” addressed this question on the opinion page of the Wall Street Journal today.  We recommend you read his entire column.  Some excerpts follow:

“I think not….I believe it would be a serious mistake for investors to panic and sell out.  There are several reasons for optimism.”

“First, I believe stocks today are cheap.”

“Moreover, the structure of U.S. corporate earnings increasingly reflects economic activity abroad…[which] is more important than the inability of Europe to get its house in order and the paralysis in the U.S. and Japan.”

“And for those who believe that the decline in the stock market reliably predicts a new recession, remember the famous dictum of the late economist Paul Samuelson: ‘The stock market has predicted nine of the last five recessions.’ “

 

“No one can tell you when the stock market will end its decline…. We have abundant evidence that the average investor tends to put money into the market at or near the top and tends to sell out during periods of extreme decline and volatility… the average investor has earned substantially less than the market return, in part from bad timing decisions. My advice for investors is to stay the course.”

 

For additional perspective, we recommend you read Larry Swedroe’s latest blog post,
How Markets Have Responded to Past Sovereign Downgrades.”