Context Matters. The Stock Market Drop Is Less Scary Than It Seems.
- 6 years ago
Context Matters. The Stock Market Drop Is Less Scary Than It Seems.
But regardless of which it becomes, it’s good for everyone’s mental health to look beyond the day’s headlines
and focus instead on percentage changes instead of point changes — and on historical patterns and the “why” behind the day’s drop in the markets.
Even after that trend reversed during the Monday sell-off, interest rates are still higher after this
drop in markets (2.7 percent at Monday’s close) than they were before (2.66 percent on Jan. 26).
That pattern happens because a weaker economy implies not just lower corporate profits (hence the falling stock indexes)
but lower inflation and continued low interest rates from the Federal Reserve (which implies bonds are more valuable and their yield should fall).
The 7.8 percent drop in the Standard & Poor’s 500 over the last six trading days is similar in scale
and speed to drops in January 2016 and August 2015, neither of which left lasting scars, and is short of the 10 percent drop that would qualify as a market correction.
But regardless of which it becomes, it’s good for everyone’s mental health to look beyond the day’s headlines
and focus instead on percentage changes instead of point changes — and on historical patterns and the “why” behind the day’s drop in the markets.
Even after that trend reversed during the Monday sell-off, interest rates are still higher after this
drop in markets (2.7 percent at Monday’s close) than they were before (2.66 percent on Jan. 26).
That pattern happens because a weaker economy implies not just lower corporate profits (hence the falling stock indexes)
but lower inflation and continued low interest rates from the Federal Reserve (which implies bonds are more valuable and their yield should fall).
The 7.8 percent drop in the Standard & Poor’s 500 over the last six trading days is similar in scale
and speed to drops in January 2016 and August 2015, neither of which left lasting scars, and is short of the 10 percent drop that would qualify as a market correction.