Mary: I’m Mary Walden with economist MW welcoming you to the economic perspective. Today’s program asks, what caused the bear stock market. Mike, at the end of 2018 the stock market turned into a bear, meaning it dropped 20% below its recent peak. What caused this drop? It seemed everyone was optimist about investing until this fall, and then the bottom literally dropped out.
Mike: Summary Answer
- Market had a very good run – 9 years of upward movement, with Dow going from 6000 to over 26,0000
- Even in summer, concerns market was overvalued
- Not unusual for investors to overshoot
- Several negatives came together at end of the year: worries over trade, political climate in Washington, and Fed interest rate policy
- Key to late plunge was Fed’s statement in mid-December that still planned interest rate hikes in 2019 – many thought they would pause
- But good news – fundamentals are strong in the economy, and there have been glimmers of optimism for a China trade deal
- Also, Fed emphasized it was data driven
- So, most experts see this drop to be temporary, and not like 2008
- I’m MW
Mary: And I’m Mary Walden for the Economic Perspective, an NC State Extension program from the Department of Agricultural and Resource Economics.