Recent U.S. economic data do not seem bad enough to push down share prices this much, but the fall seems unstoppable.

One reason is that repeated corporate accounting scandals have hurt investor trust. People feel they can’t rely on U.S. firms’ earnings reports.

During the information technology bubble of the late 1990s, corporate managers forged brisk earnings by cooking their books. Accountants not only failed to fulfill their duties but may have been involved in wrongdoing.

Brokerage analysts failed to examine corporate performance objectively on behalf of investors. Also, credit-rating agencies and the Securities and Exchange Commission did not play their expected roles.

Share prices are based on corporate earnings, and if the earnings are falsely reported, a correction will ensue. This is happening now.

Another reason behind the market slump is the growing uncertainty over the future course of the U.S. economy.

A V-shaped recovery is now in doubt, and the excess capacity in the communications sector is fueling concerns.

IT-related firms are becoming increasingly cautious about their prospects, triggering uncertainty in other sectors. Corporate sentiment is hurting and major retailers are forecasting a July-September contraction.

Japan’s stock market cannot avoid the impact of the U.S. market slump. With the boom in management of global funds, the U.S. slide will lower the level of risk tolerance. Since major world markets are increasingly linked, foreign investors will probably reduce their Japanese stockholdings, causing huge downward pressure.

If U.S. economic prospects are further clouded, an export-driven recovery in Japan will also be in doubt. How long will this continue?

Technically, both the Japanese and U.S. stock markets may be ripe for a turnaround. But given the excess communications sector capacity and fears of more accounting scandals, more time is needed before the U.S. gets over the IT bubble hangover.

Shares may briefly rebound, but over the medium term, the market appears headed further downward. The higher the peak, the steeper the gorge. In the late 1990s, U.S. stocks enjoyed one of the biggest booms of the last century. It is hard to believe the correction is over.

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