© 2024 Ideastream Public Media

1375 Euclid Avenue, Cleveland, Ohio 44115
(216) 916-6100 | (877) 399-3307

WKSU is a public media service licensed to Kent State University and operated by Ideastream Public Media.
Play Live Radio
Next Up:
0:00
0:00
0:00 0:00
Available On Air Stations

Words You'll Hear: Dow Jones Industrial Average

SARAH MCCAMMON, HOST:

And now, we turn to our regular segment, Words You'll Hear. That's where we take a word or phrase that will be in the news and use that to understand what the story is all about. This week, our words are Dow Jones Industrial Average. Investors will be anxiously watching as the stock market reopens tomorrow, following big sell-offs to end the week. The Dow lost over a thousand points on Thursday and Friday, dropping stocks to their lowest levels since November. David Wessel of the Brookings Institution joins me now to talk about what it all means for the U.S. economy. Thanks for joining us.

DAVID WESSEL: Good to be with you.

MCCAMMON: So what happened to the stock market last week?

WESSEL: Well, it fell. As you pointed out, it was the worst week for stocks since early January, 2016. The stock market on average fell about 6 percent last week. That means $1.8 trillion worth of wealth evaporated. Now, it's not quite back to where it was before Donald Trump's election, but it's pretty close.

MCCAMMON: And is this drop just a reflection of big concerns about President Trump's new tariffs or is something else going on here?

WESSEL: Well, it's always a bit of a guessing game why the stock market does what it does. It's hard to know why it rose so much and for so long. Stock markets have been very high relative to where they usually are. I think that, yes, tariffs did have something to do with it. Tax cuts are good for business. Rolling back regulation is good for business. But tariffs are not good for business, and particularly for the big companies in the stock markets - the one that moved the averages - they're very global.

But I think there are a couple of other things going on, too. Briefly, one is Facebook. All this controversy about Facebook and its privacy reduced its market value by 75 billion last week, and other tech stocks went with it. And at the same time, the Federal Reserve is raising interest rates, and that's never good for stocks. And they're signaling they might raise them a little more than people had expected.

MCCAMMON: There have also been a lot of shakeups in the White House in recent days. In reports, there may be more. How much does that play a role in rattling investors?

WESSEL: Well, it has to play some role. I think that people - whether they're in the markets or just ordinary consumers - want to know that there is some stability at the top of our government in case something goes wrong. You want grownups to handle it. And all this turmoil in the White House and putting in a very hawkish national security adviser in John Bolton - I'm sure that's contributed to uneasiness, increase in uncertainty, people saying, like, oh, the worst case could be worse than I had anticipated.

MCCAMMON: Obviously, all of this matters for stockholders. But what does it say about the fundamentals of the U.S. economy? Does this affect Main Street?

WESSEL: The stock market is not the economy, and the economy is doing pretty darn well now. Unemployment's at a 17-year low. Businesses are hiring. That's why the Fed is comfortable raising interest rates. A stock market decline is never a plus for the economy. But as you point out, only about half of Americans own any stock. House prices are more important to Americans in general than stock prices, and house prices are going up.

But this will reduce consumer spending among rich people. It will shake up businesses, and that could affect their confidence to hire and invest. But I don't think that this is telling us that we're about to have a recession unless something gets worse - if we have another couple of weeks like this or some big financial institution gets into trouble. So I think it's telling us about the stock market and not very much about the economy.

MCCAMMON: And finally, David Wessel, as the markets reopen tomorrow, what will you be watching for this week?

WESSEL: Well, I think I'll be watching to see whether the worst is behind us or whether we're going to see a continuation of the trend. And the first thing we'll see Monday morning is what's happening in the foreign markets in Europe and Asia. And then I'll be looking to see if there are any ripple effects - are there some big financial institutions that were caught off guard, and did they get into trouble? Because that was what would spread this from just affecting stock markets to the broader financial system.

MCCAMMON: That's David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. Thank you for joining us.

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

Tags