Up and down and back up again. The seemingly never ending rise and fall of the stock market lately has left many feeling uneasy from the yo-yo effect.
But according to Frank Hefner, director of the Office of Economic Analysis in the School of Business, all the doom and gloom speculation regarding the 2019 economic forecast is just that – speculation.
“We’ve always had market speculation and maybe it is a reflection of long-term issues, but you don’t get day-to-day fluctuations based on long-term issues – what you get is fear of long-term issues,” Hefner says.
With the media constantly hyping any downturns in the stock market, the ease with which we can see the latest financial news and the immediacy of electronic trading – particularly large funds that buy and sell stock based on algorithms set to certain percentages of gains or losses – the stock market seems increasingly volatile, says Hefner.
But the DOW’s tumble of more than 600 points on Jan. 3, 2019, and subsequent rally of more than 700 points the next day doesn’t necessarily mean a recession is on the horizon.
“Brokers used to go home, have a gin and tonic cocktail, wake up and think about it,” says the economics professor. “Now, it’s happening on the hour. It is fueled by so many things that have nothing to do with the underlying economy.”
But a volatile stock market can over time cause larger economic problems, says professor Calvin Blackwell, chair of the College’s Department of Economics.
“Increased volatility in the stock market can make investment less attractive,” says Blackwell. “Lower investment reduces both current and future economic activity.”
Rising interest rates could slow economic growth, but the economy is still projected to grow by around 2.3 percent this year. And while the trade war with China is ongoing, Hefner says the United States’ trade deficit with the country “doesn’t really matter for most economists.”
“Mathematically, it’s impossible for every country in the world to have a trade surplus,” he says. “You just can’t do it.”
So, what does it all mean? For the next 12 months, Hefner says all signs point to continued economic growth in the greater Charleston area as well as South Carolina as a whole. He says there’s no reason to think the same wouldn’t be true for the country.
“Gas prices are down, tax reform should help with take-home pay, job growth is continuing, new graduates are finding jobs – put all that together and the economy looks pretty good,” he says.
Blackwell says ongoing uncertainty surrounding political policies regarding trade, immigration and the federal government shutdown, including budgeting and tax policies, could put the United States’ economy in a vulnerable position.
“Many potential factors could lead to a recession,” says Blackwell.
As for the stock market swings, for the average working adult who doesn’t rely on stocks for income, Hefner says not to worry. But there is one caveat: People who are retired or those who are planning to retire soon should pay close attention to their portfolios.
“It won’t affect your daily life, unless you’re invested in the market for income or you decide you want to retire and cash in your stocks or annuity,” Hefner says of the stock market’s peaks and valleys.
