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At one point Monday, the Dow Jones was down more than a thousand points and the S&P 500, which is a wider gauge of the stock market, fell into correction territory — a drop of 10 percent from its previous high. All of the major indexes finished on a positive note, but are down since the start of the year. Amna Nawaz discusses with economist Dana Peterson of the think tank The Conference Board.
As we have reported, it was a wild ride for the markets today.
Amna Nawaz looks at what's behind this volatility and the market's recent slump.
Judy, at one point, the Dow Jones was down more than 1,000 points, and the S&P 500, which is a wider gauge of the stock market, had fallen into correction territory, which is about a drop of 10 percent from its previous high.
All of the major indexes came back, though, finishing on a positive note. But they are down since the start of the year.
To understand more about all of this, we turn to Dana Peterson. She's chief economist at The Conference Board. That's a nonpartisan business think tank.
Dana Peterson, welcome to the "NewsHour." Thanks for being with us.
I want to ask you about what we saw before that late rally this afternoon, which was a continuation of a weeks-long slide. Help us understand that. What was behind that? What were investors watching and worried about?
Dana Peterson, The Conference Board:
I think investors are watching and worrying about a number of things. Certainly, tech stocks have sold off, certainly as borrowing costs are set to rise, with the Fed raising interest rates. There's been a lot of misses in terms of earnings, given the fact that the Omicron variant really disrupted business activities.
Many workers said that they were sick and they — or they were quarantined. And that really affected profits. And, also, there's a lot of concern about geopolitics and certainly what's going on in Europe and implications for financial markets.
And what about uncertainty overseas as it relates to the U.S. weighing a response to Russian aggression in Ukraine? Is that playing into all of this as well?
Yes, I think so.
And certainly, in Eastern Europe, the standoff, if you will, the issues between Russia and the Ukraine and NATO and the U.S. are putting upward pressure on gasoline prices, not only in that region, but also globally. And that's all feeding into inflationary pressures that we're feeling right here at home in the U.S.
So what about that late rally today? What were you thinking as you saw that? And what does that tell you? Does that tell you all those concerns among investors are gone, are fading?
Well, certainly, you can have a lot of volatility from day to day. Indeed, you could have had some good earnings news.
But I think, overall, there's a lot of concern in markets about how fast the Fed is going to go in terms of tightening monetary policy. We all know that they are going to finish up the Q.E. taper by March and probably start raising interest rates.
But how many interest rate hikes are we looking at? Three? Four? Five? And, certainly, the Fed has talked about reducing the size of its balance sheet. And that will probably happen through allowing assets to just kind of expire and mature and roll off, but still and all, those are all forms of tightening.
And markets, I think, are getting a little concerned about what that means for them.
Let me ask you about the larger sort of Omicron and pandemic impact on that weeks-long slide that we saw, because even without lockdowns, right — the big concern was lockdowns would create economic holdup.
Even without the lockdowns, we have seen some major economic disruptions, both in supply and in labor. When you look in late December and early January, something like nine million Americans weren't looking for work because they were either sick with COVID or caring for someone who had COVID.
So, even as cases of this latest variant could be cresting in parts of the country, is there a longer term cumulative economic toll ahead?
Well, our thoughts that this is probably going to be pretty short-lived. Certainly, the Delta variant kind of swept through the world and really impacted the U.S. in the third quarter of last year. We did see a spell of kind of tepid growth relative to other growth rates we have been seeing during the pandemic, around 2 percent.
So we're looking at 2, 2.5 percent for the first quarter. But when we look at Omicron, at least experience in South Africa, it was very intense, but it was also very short-lived. So, hopefully, by the time we reach the second quarter, we will see better activity.
Indeed, when we asked consumers — our last survey was back in December — how they were feeling, they were still looking forward to buying goods and services and going on vacation six months hence. So that's really constructive for the second quarter.
Dana, what about the Fed's response that we're anticipating here? Obviously, inflation is running at the fastest pace in 40 years. We know they gather tomorrow for a couple of days.
Do we have any idea of when they will start to raise those interest rates, and by how much? And are you worried that if this downslide continues, they could act more aggressively?
Well, tomorrow, they will begin their two-day meeting. And I think it's pretty anticipated the Fed is going to give very strong signaling that the taper, once it's finished in around March, that the Fed is going to start raising interest rates probably by quarter percentage points, 25 basis points, potentially every other meeting. That would get us to three or four hikes for this year.
But a big concern is, as you said, what if inflation doesn't cool off? What if we continue to see inflation that's notably above 2 percent towards the end of this year? Will the Fed go more? Would they go 50 basis points? Well, right now, what we're hearing and at least what the Fed is signal is that we're looking at a good three to four interest rate hikes for this year.
But, certainly, there's risks that we could see more.
Dana, what does all this mean for Americans, for working American families? Because they see what's happening in the headlines. They are paying more for goods every day. They're living through this same uncertainty in the economy and the pandemic.
What does everything that we're seeing in the markets, this volatility, that weeks-long downslide, what does that mean for that?
So, if you own assets, then, certainly, this has not been the best few weeks for you. So certainly, if you own stocks or bonds, with the sell-offs, you have lost some interest and you have lost some capital.
But, certainly, if you have savings accounts or checking accounts that have interest, higher interest rates are good for you. But it's really about sentiment. Do people, even average Americans who may not own any financial assets, if they believe that the stock market is an indicator or harbinger of weaker growth going forward, then they may become concerned about their jobs prospects.
But, so far, many people are working. We do have the Great Resignation. Yes, people are resigning, but they're going off and finding new jobs. And the economy, certainly, at the end of last year — well, the last quarter was still doing quite well.
And even with this first-quarter weakness, 2, 2.5 percent growth is actually pretty good for the U.S. economy. But we do anticipate stronger growth in the second quarter. So it's really about how long these disruptions last and certainly how ordinary Americans perceive what's going on the stock markets.
That is Dana Peterson, chief economist of The Conference Board, making sense of a wild day on Wall Street for us.
Dana, thank you so much for joining us.
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Amna Nawaz serves as co-anchor of PBS NewsHour.
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