© 2021 WFAE
90.7 Charlotte 93.7 Southern Pines 90.3 Hickory 106.1 Laurinburg
Play Live Radio
Next Up:
0:00
0:00
Available On Air Stations

After Stocks Plunged More Than 530 Points On Friday, What's Next?

STEVE INSKEEP, HOST:

The Dow Jones industrials fell a thousand points in the opening minutes of trading today. The Dow has recovered a bit, but it's gyrating wildly. This after a drop of more than 500 points on Friday. All this happens amid concerns about China's economy and possibly, as we'll hear, something more. The market has rarely been so volatile in recent years, though there was a time during the financial crisis and after when this kind of movement was normal. David Wessel talked us through the crisis back then. He's with us now at an airport.

Good morning, David.

DAVID WESSEL, BYLINE: Good morning.

INSKEEP: How scared should we be?

WESSEL: Well, this is a little scary. This is a pretty big blip. Last week was the worst week that Dow Jones industrial average has had since September 2011. Basically, all the run-up in stock prices over the last year has been undone. Asian and European markets were bad this morning, and now we see the U.S. off to a bad start.

Now, this is obviously bad news for people who have a lot of money in the stock market and pretty unsettling for the rest of us. I think the most important question is whether this drop in the market will be reversed in the coming days or whether it's a symptom of a major downshift in the global economy.

INSKEEP: Are we in a moment, David, where the Asian markets go down and that effectively talks the New York markets down, which then talk the Asian markets down?

WESSEL: Yes, that's - you get these mood swings, and it kind of feeds on itself. I think the reason Asia is important here is - look, the U.S. economy has been doing pretty well lately, but the emerging markets, particularly China, appear to be slowing down. So I think for a long time, there was this sense that the Chinese government was capable of handling whatever came its way. But that confidence has abated in the last couple of days. It looks like their leadership is panicking - intervening in the stock market, devaluing their currency. So people are reading that as a sign that China - which is a big economy - is slowing a lot more than we thought previously.

INSKEEP: Well, then there's this other factor, David Wessel, and that's the Federal Reserve. Wasn't the Fed finally getting to a point where they were beginning to seem to feel comfortable talking about raising interest rates, which of course have been so low for so many years because of the aftermath of the financial crisis.

WESSEL: Absolutely. So the Fed has said that they think the economy is now healthy enough, so sometime soon, perhaps as early as the middle of September, they would begin to lift interest rates off the zero level, where they've been since 2008.

So I think the big question now is, what do Fed officials think of this? Will this slow down, in China, the dark clouds on the world economy? Can this incredible turmoil in stock prices be so much of a damper on economic growth or raise so many questions that they'll just decide, maybe we should wait a while longer before pulling the lever on raising interest rates?

INSKEEP: You know, speaking of pulling the lever, let me just ask about the average investor - the ordinary person out there. Are we still at a moment where the financial advice to the ordinary person would just be do nothing - just wait?

WESSEL: I think so because in general, history tells us that people - small investors who sell when the market goes down - always pick the wrong moment. If you are about to retire, if your kids are about to go to college, you probably shouldn't have had so much money in the stock market in the first place. But if you're like me - I'm five or 10 years away from retirement - I certainly wouldn't panic to sell now. I think history tells us that's almost always a mistake.

INSKEEP: That's David Wessel of the Brookings Institution and of The Wall Street Journal. Thanks very much.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.