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What’s behind the recent stock market volatility?

Stocks went into a freefall Wednesday after the bond market stoked fresh fears of a recession. The Dow Jones plunged 800 points -- a sharp departure for a market that had very recently been hitting record highs. And the high level of volatility has investors on edge. Jeffrey Brown talks to Neil Irwin of The New York Times about how uncertainty is creating hesitation on the part of global business.

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  • Amna Nawaz:

    Today's 800-point plunge on Wall Street is just the most recent swerve for a stock market that had very recently been hitting record highs.

    Jeffrey Brown reports that the high level of volatility has investors large and small on edge and looking for answers.

  • Jeffrey Brown:

    President Trump's trade and tariff wars, major slowdowns in the economies of Germany and China, the prospect of further actions by the Federal Reserve, and more. It may be August, but national and global events are impacting markets and, maybe, the economy overall.

    Neil Irwin, senior economics correspondent for "The New York Times," joins me now.

    Nice to have you back.

  • Neil Irwin:

    Thanks, Jeff.

  • Jeffrey Brown:

    Big drop in the market today. You see several things going on. Let's start with the trade and tariffs. How is that moving markets?

  • Neil Irwin:

    Sure. So, we've seen a bit of a de-escalation of the trade wars in the last couple of days —

  • Jeffrey Brown:

    Uh-huh.

  • Neil Irwin:

    — as the president has kind of backed away from one round of tariffs that were set to go into effect.

  • Jeffrey Brown:

    Which should be good in a sense, yes.

  • Neil Irwin:

    It should be good, but remember, that was only partially pulling something that was only announced back two weeks ago.

  • Jeffrey Brown:

    Yes.

  • Neil Irwin:

    What we're seeing is that this trade war, it's something bigger than just one little dial that you can twist. It's infecting the overall economic relationship between the world's two largest economies. Businesses worldwide are having to adapt and adjust, and they're nervous about making investments and really investing in the future given that backdrop.

  • Jeffrey Brown:

    Do we see actual damage already or is this about fears looking ahead?

  • Neil Irwin:

    So, so far, in the U.S., economic data, it's pretty mild. You see some evidence that the industrial sector is slowing down. Business investment has been weak in the last few months.

    But it's not a catastrophe so far for the U.S. economy. So far, the U.S. economy seems to be holding up. The question is what — what's going to happen in the future?

  • Jeffrey Brown:

    And when the president pulled back yesterday on the latest tariffs or at least postponed them, was that perhaps as seeing that it might — this time, it might affect consumers, or why — why do you think he did that?

  • Neil Irwin:

    Yes, I think this was — this round of tariffs is going to affect consumers 10 percent on basically all Chinese imports, including toys, including iPhones, including things that people are buying in the Christmas season. They didn't want to do that.

    The thing is you can't really go back again. Sometimes, this idea of constantly escalating global economic warfare, once that gets in place, it's not so much the details of any one tariff, it's what's going to happen to the relationship overall, and what does that mean for the future.

  • Jeffrey Brown:

    All right. So, there's that on the one hand, but you're seeing something that's part of — this is part of something much bigger, deeper, a slowing, a weakening, perhaps even signs of a recession. What points to that?

  • Neil Irwin:

    So, the biggest thing is what happened today is called an inversion of the yield curve. So, the yield curve is interest rates on the treasury bonds for different durations, different time periods. And what's happening now is you're actually seeing lower interest rates on longer term bonds than on shorter term. All that means is investors worldwide soon to be pricing in an expecting slower growth, weaker growth, lower inflation, more Federal Reserve rate cuts. That's a pessimistic signal we're getting from global bond investors.

  • Jeffrey Brown:

    And how — where are they seeing that? I mean, what specifically are they looking at that's making them feel so pessimistic?

  • Neil Irwin:

    It seems to me this global forces, not just the trade wars that we're already talked about, but a sharp slowdown in the European economy, geopolitical tensions. You have tensions between China and Hong Kong.

  • Jeffrey Brown:

    Yes.

  • Neil Irwin:

    You have a very complex situation where the entire world economy and the world political system seems to be in this very fragile state. So, it doesn't take much to undermine growth.

  • Jeffrey Brown:

    Now, the president clearly seeing what's going on, he put out another tweet today, another blast at the Fed chairman. He referred to him as clueless Jay Powell. What is — what is that coming from? Or what do you seeing there?

  • Neil Irwin:

    So, look, President Trump wants to blame the Fed for everything bad that's happening in the world markets and the economy. And it is true — look, the Fed raised interest rates four times last year. They've already taken back one of those. They seem to believe that — you know, there's some evidence that they overdid it last year and maybe raised rates too much, given where the global economy is.

    But you can't — you know, you can't hold the Trump administration blameless. They keep kind of throwing bombs in the different elements of the global trading system in ways that are disruptive. And you talk to CEOs. You look at corporate earnings reports. There's clear evidence that the Trump administration has part of the responsibility.

  • Jeffrey Brown:

    I mean, we've talked about this before and over the years many times, the uncertainty unsettles markets, right?

  • Neil Irwin:

    Yes, if you're a CEO, you're trying to decide whether to invest, whether to hire people, whether to build a factory. You look around — you don't know what the world economy is going to look at in a year because there's this kind of chaos that emanates from, not just Washington, from other world capitals as well. That's a very difficult setting in which to do business. And what's happening in markets is reflecting that more and more.

  • Jeffrey Brown:

    It is still true, though, that some numbers look OK, or even good, right? Job market is still OK. Wages are up. So, is everybody sort of parsing all these numbers, huh?

  • Neil Irwin:

    Yes. Look, so far, the U.S. economy has been the calm in the storm. The U.S. economy has been basically sound even with all this — all this turmoil overseas.

    The problem is what's being — what we're seeing in markets this month seems to be suggesting that could change. And it doesn't have to be a recession. We can still avoid a recession, but the risk of one is a lot higher than it was a month ago.

  • Jeffrey Brown:

    And just briefly before we go, what is it about August? Something about — everybody is supposed to be relaxing, but a lot of things happen in the economy and market — markets.

  • Neil Irwin:

    We keep seeing this — happened in 2011, happened in 2007, happened in 1998. You know, one explanation, it seems to be that a bunch of traders are on vacation, so there's liquidity in markets. You get wilder swings.

    It may be just a coincidence but I think we've seen this pattern before where August is the month where global markets seem to melt down.

  • Jeffrey Brown:

    All right. Neil Irwin of the "New York Times" — thank you very much.

  • Neil Irwin:

    Thanks, Jeff.

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