What is happening with the stock market?

Financial data on a monitor, Stock market data on LED image taken from: https://www.istockphoto.com/photos/stock-market

On Monday, February 5, the Dow Jones Industrial Average dropped 1,597 points, the most it had ever dropped in the middle of a single trading day. The Dow had recently hit a record high of 26,616 points on January 26. According to The Wall Street Journal, as of Friday, February 9, the Dow had dipped 2426 points from that high, a 9% decrease, dangerously close to what is known as a stock market “correction,” a 10% decrease after an extended time of growth. This sounds very bad, but what does it even mean?

Investopedia gives information about the stock market, including how the stock market itself, describes the trading of shares (put simply, an investment in a corporation). The Dow Jones Industrial Average, as well as the S&P 500, and the Nasdaq Stock Market, are measures of the average trading value of stocks based on the stock prices of several major corporations. When they decline, that means stocks are less valuable. For people with money invested in the market, this is bad. But, it is not necessarily bad for most Americans, and it could even be good for new investors.

According to Slate, the reason for the downturn in the stock market actually has to do with recent news that is good for Americans. On February 2, the U.S. Labor Department announced that workers were being paid more than economists predicted they would be. To stock traders, this meant that the Federal Reserve would probably raise interest rates on stocks to compensate, meaning they would have to pay more money to their investors. Thus, they sold many stocks quickly and for decreased value, creating the downturn. This downturn had knock-on effects around the world, most noticeably in markets in Japan and Hong Kong.

As reported by CNN, this does not mean the US, or the world, is going through an economic recession, as it did in 2008. Most economists say that this downturn was bound to happen; the stock market had grown consistently since the Great Recession, and especially so since the election of President Donald Trump. Economists advise people with stocks not to sell, but to hold their stocks until better conditions come about. As for new investors, now is as good a time as any to invest.

President Trump had been claiming, before the decline, the tremendous stock market growth seen during his presidency as one of his greatest achievements. When the downturn occurred, Trump commented on Twitter, “In the ‘old days,’ when good news was reported, the Stock Market would go up. Today, when good news is reported, the Stock Market goes down. Big mistake, and we have so much good (great) news about the economy!” This is not historically accurate according to the Huffington Post. News of wage increases has sent the stock market into a panic before.

MarketWatch reports that the stock market decline is nothing to worry about for the average American; its most recent fluctuation is totally natural. The Dow Jones is still up (24,609 points, as of February 12), and gaining more-and-more of its lost ground each day. CNN Money predicts that the incoming corporate tax cuts, part of the Republican Senate tax bill, will only help increase stock values, also.

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