(Agencies)
Updated: 2008-01-23 09:02

The pack mentality of Wall Street could be the market's biggest driver -- it's what triggered comebacks in the past, and one reason experts say long-term investors should sit tight.

When investors feel the market has indeed gone as low as it should, they'll start buying, even if the economy is not yet barreling higher.

Still, a recovery might take months or years. After the technology bust of 2000 and the 2001 terrorist attacks sent Wall Street into a deep bear market, the market took several years to turn around -- and at that time, Americans had something sure, something physical, to put their money and confidence in: their homes.

That economic pillar, which helped support spending, has cracked. People who took out giant mortgages with tiny down payments, or who used their homes' value to borrow money, no longer have the security of home equity amid a slumping housing market.

And banks that were burned writing mortgages for consumers with shaky credit are now wary of lending, especially since other types of consumer debt, including car loans and credit cards, are seeing defaults rise.

The Bush administration has proposed ways to ease Americans' plight, first with a plan to prevent more mortgages from going sour, and, last week, with an economic stimulus packing that included $145 billion in tax cuts. On Tuesday, the White House said President Bush won't rule out the possibility of a larger package.

But like interest rate cuts, a stimulus package, which would first need the approval of Congress, would not work immediately.

"Economists are not generally impressed by a fiscal stimulus, because it takes a long time to produce the desired effect," said the Credit Union National Association's Schenk. He explained that some people -- shrewdly -- would save the money they receive instead of spend it.

European stocks joined their US counterparts in rebounding after the Fed's rate reduction. Britain's FTSE 100 rose 2.90 percent, France's CAC-40 rose 2.07 percent, Germany's DAX index pared its loss to 0.31 percent.

In Asian trading, which ended before the Fed move, Japan's Nikkei stock average closed down 5.65 percent -- its biggest percentage drop in nearly a decade. Hong Kong's Hang Seng index lost 8.65 percent a day after showing its biggest losses since the Sept. 11, 2001, attacks.

In other trading Tuesday, the yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.48 percent from 3.63 percent late Friday.

Crude oil prices fell 72 cents to settle at $89.85 a barrel on the New York Mercantile Exchange on concerns that a weak economy will dampen energy demand. The dollar fell against most other major currencies except the yen, while gold rose.

Declining stocks outnumbered advancers by about 10 to 7 on the New York Stock Exchange. Consolidated volume came to 6.33 billion shares, up from 5.84 billion Friday.

The Russell 2000 index of smaller companies fell 1.61, or 0.24 percent, to 671.57.

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