Stock Plunge: What Happened And What's Next?
RENEE MONTAGNE, Host:
This is MORNING EDITION from NPR News. I'm Renee Montagne.
STEVE INSKEEP, Host:
And I'm Steve Inskeep. Good morning.
W: Will the Earth be swallowed in a lake of fire, or will it rain unicorns and money?
MONTAGNE: Good morning, David.
DAVID WESSEL: Good morning.
MONTAGNE: Of course -(Unintelligible) seriously, the Dow fell, Asian stocks fell, the European market started down sharply before recovering a bit of ground. Why and why now?
WESSEL: Well, that's a good question and I'm not sure we know the answer. For some time now, stocks have been going up, even though the economic arrows have been pointing down. That really persists. Something has to give, either stocks go down or the economy goes up. Well, the market seems to have caught up with the economy now.
MONTAGNE: So, why yesterday? Gosh, I don't think anybody knows for sure. These mood swings are very hard to explain. It's almost as if the markets have been distracted by this drama over the debt ceiling in Washington. And once that was solved, they turned around and notice that the bottom has fallen out of the world economy.
MONTAGNE: Right, but is it possible that the markets are overreacting?
WESSEL: There are signs that the global economic slowdown is spreading, not only in Europe and the U.S., but in some of the emerging market countries that have been the growth standouts for the last couple of years. And then I think there is this sense that, somehow, governments aren't able to ride to the rescue this time, and that's a little bit unnerving.
MONTAGNE: Well, the Federal Reserve is meeting this Tuesday. Is there anything that the Fed can do or, in fact, will do about this?
WESSEL: But there's not really much left on their plate. And that's one of the unsettling things.
MONTAGNE: Well, another thing that could make a big impact is the government's job report for July, which would be out this morning - comes out in the midst of all this bad news. How will those numbers be scrutinized, do you think?
WESSEL: Well, very, very, very closely - more than usual. On balance, employers created very few jobs in May and June. And that led people to see that the economy was slowing. So people are going to look at the reading for July with more care than usual, basically to tell the employers pick up the pace of hiring or not. And if they didn't, that will really spread the fears that a recession has already begun.
MONTAGNE: David, just a last thought. Sometimes markets are seen as a predictor of the economy. But can a market plunge like the one we're in right at this moment actually make things worse for the rest of the economy?
WESSEL: Yeah, absolutely. Look at it this way, over the last week Standard & Poor's 500 Index and the stock market has lost about 10 percent. That means about $2 trillion in wealth has evaporated. And using traditional rules of thumb, the economist at J.P. Morgan estimate that could shave half a percentage point off the economic growth in the second half. And that's a pretty big hit, considering that the U.S. economy grew at less than one percent rate for the first half of this year.
MONTAGNE: Thanks very much for joining us.
WESSEL: You're welcome. Next time, good news.
MONTAGNE: Hopefully, thanks.
INSKEEP: We'll see.
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