Will Wall Street’s rough week prove an overdue correction?

There was a global sell-off of stock today, as investors panicked in the wake of another Chinese stock crash. To understand Wall Street’s bad week, Judy Woodruff speaks to Liz Ann Sonders of Charles Schwab.

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    Let's take a closer look now at Wall Street's wild day, bringing to a close a long week of jitters.

    For some answers to what's behind it all, we turn to Liz Ann Sonders, chief investment strategist at Charles Schwab.

    Liz Ann, welcome back to the program.

    So, this is — I'm reading, this is the worst week since 2011. What is going on?

  • LIZ ANN SONDERS, Charles Schwab:

    So, what may on the surface seem like a bunch of disparate things, they're actually very interrelated.

    You have got very weak growth in China, some data that came out today showing that part of their economy in contraction. We have got the plunge in commodity prices, including oil prices, which ties back to the weakness in China, so just global growth concerns, deflation concerns. And deflation is a fairly toxic environment because, whether you're a consumer or investor, if prices are continuing to go down, it halts activity.

    And then this has all brought up uncertainty regarding Fed policy and how Janet Yellen and the Federal Reserve is going to react to this global turmoil. And we were, frankly, overdue for a correction. It's been almost four years. They normally happen every year. So this has been a long span of very, very mild equity performance.


    Well, when you say overdue for a correction, I did read one columnist in The New York Times today who said this is actually — as bad as it seems, he said it's a much-needed breather, when some markets had been starting to look a little bubbly. That was Neil Irwin.


    Oh, I agree with that.

    I think that corrections are healthy. They bring sentiment. It keeps complacency from becoming pervasive. So I think corrections are healthy. They are a cleansing process. Now, whether we're at the end of this month, I'm not so sure. We're not even quite there yet for the S&P 500, although the Dow is in correction territory, which is down 10 percent or more.


    You mentioned China. What role — how are China's problems with its economy affecting these markets?


    Well, again, they have been huge commodity producers.

    They caused a huge amount of supply increases for commodities, which set the stage for the plunge that we're seeing in commodities. So that's a big part of it. They are the world's second largest economy right now. Now, if you take Europe as a zone, the Eurozone is the second largest to the U.S. But, by country, it's China.

    So, they are a big producer of things. They are big consumer of things. They have an export market. We and other countries export to them. So, a big slowdown, bigger-than-expected slowdown in China absolutely affects global growth and in turn to some degree affects our growth.


    And just quickly, what about oil, down below $40 a barrel at one point today? What role is that playing?


    Well, for the U.S. economy, which is 68 percent driven by the consumer, it's ultimately a good thing. We are oil consumers.

    The problem is that the hit it causes to the energy sector in particular tends to come immediate. And the benefit, the offsetting benefit to consumers tends to come later. So we're dealing with the immediate hit before we get the offsetting benefit.


    So, Liz Ann, for someone watching this who is thinking, oh, my goodness, what about my retirement account, worried — a 500-point-plus drop seems pretty dramatic. How concerned should people be? Do they just take a deep breath and wait and see what happens next week?


    It's almost always a good idea to take a deep breath. Panic is not an investing strategy.

    And most investors who have acted with panic have probably not served themselves very well. I don't know whether this is the end of this. Again, a 10 percent correction is fairly normal. They happen every year. I think we will ultimately get through this. I wouldn't make any rash decisions based on just what we saw today. And 500 points isn't what it used to be. You have to look at things in percentage terms.


    And, again, we're talking about the financial markets. What would you say right now about the state of the health of the overall American economy?


    I think the economy is not going to suffer all that much.

    We are a very closed economy, to some degree, because our economy is two-thirds driven by the U.S. consumer, so we tend to be impacted a bit less by things like what we're seeing overseas right now. However, we're already in a relatively slow-growth mode. And this certainly isn't going to help pull us out of that.

    So I think we stay in this slow-growth, below-trend kind of environment. I think the risk of recession is fairly low.


    Liz Ann Sonders, chief investment strategist at Charles Schwab, we thank you. Good to see you again.


    Thanks, Judy. You, too.

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