Wall Street Marks Worst Day In 3 Months

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October has often been a bad month for the stock market and Thursday's trading was a reminder of that. The Dow fell 203 points, the S&P dropped 27 points and the Nasdaq composite shed 65 points. David Wessel, economics editor of The Wall Street Journal talks with Steve Inskeep about why financial markets dropped.


NPR's business news starts with unemployment still rising.

(Soundbite of music)

INSKEEP: The government's employment report came out today, and it was disappointing. Employers cut 263,000 jobs last month. That pushed the overall unemployment rate up to 9.8 percent, which is up a tick from 9.7 a month before. More than 15 million Americans are now out of work. That's a reminder that even as financial policy makers talk about economic recovery, many Americans are still stuck in a recession.

Anxieties about this report may have contributed to yesterday's fall in stock prices. The Dow Jones Industrial Average dropped more than 200 points yesterday. That's about 2 percent. Still, those stock prices have had a big run-up this year. The Dow's been looking like it might cross 10,000 again at some point in the near future.

To take stock of what's happening on Wall Street and in people's portfolios, with David Wessel - he's economics editor of the Wall Street Journal and a regular guest here.

David, good morning.

Mr. DAVID WESSEL (Wall Street Journal): Good morning, Steve.

INSKEEP: OK, a 200-point drop. Immediately this gets me wondering about this phrase that people have been using when they talk about a bear market rally, which would assume that really, the stocks are basically going down in the long term.

Mr. WESSEL: Right. I mean, yesterday was great evidence for the skeptics, the people who said that the market had become unrealistically euphoric. Now, I don't think you should ever read too much into anyone day's movement in the market. The Dow Jones Industrial Average lost 2 percent yesterday, and it had a couple of bad days before that. But even after all this, the third quarter was the best quarter the market's had in 10 years, and the stock market is 45 percent higher than it was when things looked bad in March. But it certainly was a pretty strong warning.

INSKEEP: So given that the overall trend, at least in the last few months, has been up, why has the market been going up, at least until now?

Mr. WESSEL: It's always hard to tell exactly what's moving the market, but I think that until now there has been this giant sigh of relief that we weren't having another Great Depression, that the recession appeared to have an end.

Interest rates are very low, so if you have a choice between putting your money in something that pays interest, either a bank or a bond, it looks unattractive relative to stock market. So it's a sign that things are better than they were, a sign that things could have been worse. Yesterday was a reminder that they're not quite as good as some of the most optimistic people thought.

INSKEEP: Although you love human nature, the optimism of human nature, that basically people could say, well, at least it's not a Great Depression. Let's buy some stocks.

Mr. WESSEL: Well, the stock market, if we'd been in another Great Depression, the stock market would be a lot worse. But I think that what the market's telling us now is that - and the numbers we saw out of the economy yesterday from factories and unemployment claims, they're telling us that, you know, this is going to be a bumpy road for a while and so the market's going to be bumpy too.

INSKEEP: So when you look out over the next few weeks or months, what might turn yesterday's drop into a longer decline - if that were to happen?

Mr. WESSEL: Well, more bad economic news on the jobs front or on corporate profits would certainly turn the market's attention to all the bad things in the economy, so that's the one thing that would really make a big difference.

I think the other thing that's significant is if something happened that diminished foreigners' appetites for U.S. securities, whether they're Treasury bonds or stocks, and that led to a sharply lower dollar, that could really shake up the market and ruin this, what has been a pretty good ride for the last three or four months.

INSKEEP: And David, one other thing. How much does the stock market, which we've been talking about here, really matter to the broader economy these days?

Mr. WESSEL: Well, in some sense the stock market is a casino, and it has good days and bad days, and that doesn't matter very much. It's a huge mood swinger. When the market's up, businesses feel better and they do better things. It may be a good barometer of the economy, although it seems to be hard to tell from day to day what it's telling us.

I think the most important thing is that there's a lot of money in the stock market and when the stock market does well, companies are stronger financially, they can sell shares if they need to raise money to build factories or office buildings or invest in software. And even more important, it makes people richer - not maybe everybody, but the people who have money in the stock market.

In the third quarter alone, the stock market added $1.7 trillion worth of wealth to the portfolios of stock market investors. Now, even if only a small fraction of that is spent, it's a lot of money, particularly at a time when housing prices, another big asset America has, are falling.

INSKEEP: David, thanks very much.

Mr. WESSEL: You're welcome.

INSKEEP: That's David Wessel of The Wall Street Journal.

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