When in doubt, do nothing.
That’s the advice Alabama economists and local investment advisers gave Tuesday, after a two-day stock market slide that had all eyes on Wall Street.
“There’s no need for panic,” said Vester Martin, a financial adviser for Edward Jones on Leighton Avenue in Anniston. “Economic conditions are still good overall.”
Martin spent part of Tuesday morning calling clients to tell them that there was little cause for worry from Monday’s 1,175-point slide in the Dow Jones Industrial Average.
That’s the biggest single-day point loss in the stock market’s history, and it came on the heels of a 666-point slide on Friday. The slide came after the Dow hit record highs, above 26,000, meaning Monday’s losses knocked about 5 percent off the market’s total value. The Dow rose again Tuesday by about 500 points, a significant rise but not enough to make up for the two days of losses.
Economists say the market swings are not a cause for much worry.
“Corrections like this happen all the time,” said Ahmad Ijaz, an economist for the Center for Business and Economic Research at the University of Alabama.
That comes after a steep climb in stocks over the last year or so — a climb that coincided with declining unemployment and rising wages. Local experts say the slide on Monday and Friday was likely due to investors’ concerns that the Federal Reserve would raise interest rates in response to the improving conditions.
“It’s weird that good news would turn into bad news,” Martin said. He believes a Friday release of jobs numbers — numbers showing more people employed, with rising wages — actually made investors all the more certain that interest rates are going up, triggering the slide.
Martin said he hasn’t heard many emotional reactions to the slide from his clients, largely because he warns them often that swings in stock prices are bound to happen.
“This is to be expected, but it always hurts when it happens,” he said.
The market sinkhole may well have gone unnoticed by many Alabamians. According to a Federal Reserve survey released in September, only about half of American families have any investment in stocks, either directly or through a retirement plan. For the other half, the big worry would be a 2008-style stock market crash that ultimately leads to layoffs and other signs of recession.
“There’s some disconnect between the stock market and the economy,” said Ijaz.
Unemployment is low, Ijaz said. That combined with rising wages could create inflation down the road, he said, but so far it’s a long-term concern.
Bill Fielding, a Jacksonville State University economics professor, said even people with money in the markets shouldn’t get too worked up about the market swings. He noted that he sold none of his own stock during the 2008 crash — and came out ahead in the long run.
“If you sell now, you turn a paper loss into a real loss,” Fielding said.
Fielding said the slide was to be expected, after a 400-day streak without any serious dips in the market. Corrections happen about once a year, he said. He said the Dow is likely to continue to rise, but not as sharply as it has in recent months.
“We had a tremendous run up to this point,” he said. “That was unsustainable.”