The United States witnessed an amazing, meteoric economic-growth trend, from the depths of despair from the 2009 financial crisis to where we are now. In the last 10 years, we have gone from a near depression to record-setting highs in employment and the stock market. Unfortunately, markets don’t experience an uninterrupted, upward trajectory forever.
Wall Street professionals and experienced investors know that blazing-hot stock markets ultimately correct, leading to recessions or sometimes crashes. On Wednesday, we watched an ugly 800-point plunge in the Dow Jones Industrial Average, which serves as a bellwether for the stock market. Predictably, media outlets immediately went into a frenzy—predicting doom, gloom and a recession. Cable news had a field day, citing geopolitical events, inversion of the yield curve, trade war tensions and other fear-inducing sound bites as the cause to frighten viewers into staying tuned into their channels. The television journalists and newspaper writers could have calmly and dispassionately informed the public that the stock market corrections of 5% to 10% are common and we are long due for one, but that doesn’t generate ratings.
The worry I have is not so much the vagaries of the stock market, but rather the perception of the future direction of the stock market and its impact on hiring. The job market is closely correlated with the stock market. Stock prices are based on future earnings. If stocks are high, then investors believe corporate earnings and profits will do well. If the market is down, it could be because investors lack confidence in the ability of companies to generate growing profits in the future.
The large number—800 points—alarms the average person who is unaware