LTE: Relax, the stock market (and you) will be just fine

Illustration by Steck Von

To the editor:

Last Monday, The Dow Jones Industrial Average dropped 1,175 points, the largest drop it’s ever experienced in a single day. The market dropped 666 points and 567 points on Friday and Tuesday that week respectively. But you still shouldn’t panic.

Trump and the Republicans use stock market numbers as proof they’re making the country great again. And the Democrats, for the most part, have failed to convince the general public that the stock market isn’t the greatest indicator for measuring an economy. Here’s why you have nothing to worry about:

This kind of volatility has become more common because of increasing electronic stock transactions. Traders are using an algorithm and many of them are using the same exact algorithm. If the electronic traders swing one way or another, the market will be more unified with its direction.

The most recent jobs report made the algorithms switch dramatically, most likely because it indicated wage inflation was 2.9 percent. This should be a good thing. Factors such as a healthy economy and tax cuts for individuals allow people to get raises. But because traders, the algorithms and most importantly the Federal Reserve, fear inflation more than anything else, good news will be treated as bad news because it means the unemployment rate is low.

They are wrong because inflation is barely over 2 percent, and the economy isn’t doing as well as the unemployment rate indicates. From a macroeconomic perspective, 4 percent unemployment looks like full employment, but evidence suggests otherwise. If we look at it from a microeconomic perspective, two demographics stand out that are still clearly struggling — Blacks and youth. Black unemployment is more than 3 points higher than the overall unemployment rate which sits at 7.7 percent. And the youth unemployment rate is 9 percent. But it’s uncertain when the Fed will catch on to this.

Lastly, as the economy becomes more global, trends between countries’ markets become more similar. This is why it shouldn’t come as a surprise to see that the trend of a decline in stock values right now is global, not just American. All in all, people should stop worrying. We’re fine — for now.

-Taylor Nguyen

 

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