Here’s Why You Should Worry About The Turbulent Market – And Why You Shouldn’t

Mar 11, 2020, 1:43 PM
The Dow Jones Industrial was down about 1,200 points Wednesday afternoon....
The Dow Jones Industrial was down about 1,200 points Wednesday afternoon.

(CNN) — It’s been a wild couple of weeks for investors. Deciding whether to remain calm or freak out about the new normal of thousand-point selloffs isn’t easy.

Here’s what you need to know:

Stocks are inching closer to bear market territory, having dropped nearly 20% from their record highs in February as the market tries to price in the risk of the global coronavirus outbreak. Sandwiched between the bad days have been sharp rebound rallies that included the Dow’s best three days in history in terms of points gained.

So what gives?

Don’t panic

If market strategists can agree on anything in these volatile times, it’s not to panic.

A diversified portfolio is built to withstand certain stress, and unless retirement is right around the corner, investors saving for life after employment will have plenty of time to even out recent losses.

Since the start of the year, the S&P 500 has fallen more than 14%. But last year’s rally boosted the index nearly 29%. So on balance, it’s still up versus 2019.

Coronavirus, as scary as it might be for the economy, is also only a temporary factor.

The underlying US economy has been going strong for more than a decade, with steady GDP growth and an unemployment rate near a 50-year low. Wages are growing, albeit slowly, and America’s consumers are spending, which is important because they are the backbone of the US economy.

All of this bodes well for a rebound after the coronavirus effect wears off.

“The underlying strength of economic conditions could make it possible for a quick rebound once it appears that the virus is under control,” said Brian Rose, UBS senior economist for the Americas. “With support from both monetary and fiscal policy, our base case is that a sustained downturn will be avoided.”

The Federal Reserve has already cut interest rates in an unscheduled emergency measure last week, and further cuts are expected. The White House has meanwhile proposed a payroll tax cut.

America won’t slide into a recession even though the chances have risen, said LPL Financial in a blog post. Growth in the second half of the year is still expected to outweigh the pain in the first half.

But worries are warranted

Risks to America’s longest economic expansion in history are growing, however.

There are three major areas to worry about, all of which are connected: the economy, the market and oil prices.

It will take a few more weeks before economic data points for the first three months of the year begin to trickle in, finally giving investors a look at the initial impact from the coronavirus outbreak.

But with cases increasing in the United States, second-quarter economic growth could also be at risk. Some forecast negative GDP growth between April and June. No matter if it’s negative or just slowing growth, though, the virus outbreak is expected to deal a hit to full-year GDP growth.

Economists at BMO forecast GDP growth of 1% in 2020, dragged down by negative 2% growth in the second quarter.

Stocks have meanwhile been flashing red as well, with major benchmarks falling nearly 20% from their record highs in February. A 20% decline from the most recent peak is considered a bear market. US stocks aren’t in one yet — but they’re close.

A drop in US Treasury yields has exacerbated the stock selloff in recent weeks. The 10-year Treasury yield fell to a record low of 0.32% Monday, just a week after first falling below 1%.

Deflationary pressures are getting stronger in the United States and around the world, which isn’t a good sign for economic recovery.

The third risk factor is an oil price war between Russia and Saudi Arabia. After last week’s talks between oil-producing nations failed, the Saudis over the weekend lowered their selling price and the oil market collapsed Monday.

Saudi Arabia had ramped up production in the face of falling oil prices.

But the two nations can withstand much lower prices than US production, because those countries input costs for oil production are lower. This could lead to serious economic pain for corporations and workers in America’s oil-producing states likes Texas and Oklahoma.

KSL 5 TV Live

Top Stories

National News

MIAMI, FLORIDA - SEPTEMBER 23: Ice cream is for sale in a Ben & Jerry's store on September 23, ...
WILSON RING Associated Press

Ben & Jerry’s ice cream fight in Israel heats up

The Vermont-based ice cream maker Ben & Jerry's is suing its corporate parent Unilever over a plan that would allow its product to be sold in east Jerusalem and the occupied West Bank.
23 hours ago
This aerial image taken from video, show damage to the Georgia Guidestones monument near Elberton, ...
JEFF AMY Associated Press

Georgia monument bombed after candidate called it ‘satanic,’ called for demolition

A rural Georgia monument has been bombed, damaging one of four granite panels weeks after GOP candidate claimed they were "satanic" and called for their demolition.
23 hours ago
NEW YORK, NEW YORK - APRIL 30: Bruce Horak and Ethan Peck attend the Paramount+'s "Star Trek: Stran...
Associated Press

Star Trek’s ‘Strange New Worlds’: In defense of episodic TV

Two generations after its 1966 debut, the universe of “Star Trek” has become a vast and sprawling mural in these heady days of streaming TV.
23 hours ago
Vince Rodriguez, KOAT

Woman arrested after stealing car with 2 children inside

One woman has been arrested after police say she stole a car with children inside on July 4, in New Mexico.
23 hours ago
CULVER CITY, CALIFORNIA - AUGUST 27: The TikTok logo is displayed outside a TikTok office on August...
Cary Schwanitz

TikTok sued following young girls’ deaths after taking ‘blackout challenge’

Two families filed lawsuits against the social media giant TikTok last week alleging its algorithms were responsible for the deaths of two young daughters who took part in the “blackout challenge” according to a Los Angeles Times report.
23 hours ago
FILE: NEW YORK, NEW YORK - JUNE 29: A sparse crowd watches a fireworks show at Coney Island as part...
Amir Vera and Rob Frehse, CNN

A tip from a ‘hero citizen’ thwarted a mass shooting planned for July 4 police say

One phone call saved countless lives and prevented a potential mass shooting during July 4 celebrations in Richmond, Virginia.
23 hours ago

Sponsored Articles

Lighting Design

Check out these stunning lamps with stained glass shades

Lamps with stained glass shades are statement pieces that are more than simply aesthetic. They also meet a functional requirement: to light up a room.
Address Bar of internet browser shows internet access...

Utah Voters 50+ Support Increased Access to Internet

The AARP surveyed Utah voters aged 50 plus about internet access and if they support the expansion of broadband, especially in rural areas currently lacking it.
hand holding 3d rendering mobile connect with security camera for security solutions...
Les Olson

Wondering what security solutions are right for you? Find out more about how to protect your surroundings

Physical security helps everyone. Keep your employees, clients, and customers safe with security solutions that protect your workplace.
Many rattan pendant lights, hay hang from the ceiling.Traditional and simple lighting....
Lighting Design

The Best Ways to Style Rattan Pendant Lighting in Your Home

Rattan pendant lights create a rustic and breezy feel, and are an easy way to incorporate this hot trend into your home decor.
Earth day 2022...

How Are You Celebrating Earth Day 2022? | 4 Simple Ways to Celebrate Earth Day and Protect the Environment

Earth Day is a great time to reflect on how we can be more environmentally conscious. Here are some tips for celebrating Earth Day.
Get Money Online...

More Ways to Get Money Online Right Now in Your Spare Time

Here are 4 easy ways that you can get more money online if you have some free time and want to make a little extra on the side.
Here’s Why You Should Worry About The Turbulent Market – And Why You Shouldn’t