Don't Panic About Market Undulations

If you hold stock—and most Americans do—the financial news of the last few days has been pretty jarring.

On Friday, the country’s best-known stock index, the Dow Jones Industrial Average, fell 666 points. On Monday, it fell again another 1,178 points, its largest one-day point decline ever. Overall, the major indexes are down more than 5 percent in the last two trading days, recalling some of the depths of the stock market meltdown of 2008.

As painful as that is for investors watching parts of their retirement portfolios disappear, the last few days of the stock market also represent an important teachable moment – about stocks, our economy, and our political leaders.

First, some context. The recent losses, while steep, take stocks to about where they were in November 2017. They are still up double digits from a year ago, and the major indexes are still several times higher than they were in 2009.

The latest selloff started after a jobs report on Friday that showed unemployment continuing near 20-year lows and wages accelerating. Rising wages and more jobs sound good to most people. But to Wall Street traders, they are signs that the economy is too strong and could lead the Federal Reserve to raise interest rates, which makes stocks less appealing. Economists agree that important benchmarks of the U.S. economy, including corporate earnings and business and consumer spending, remain healthy.