Why Is the Stock Market Tumbling? And Should You Panic?

Photo (cc) by dflorian1980

The Dow Jones Industrial Average fell more than 1,000 points — or 6.6 percent — to open this morning. It later recovered, only to slump again and finish the day nearly 600 points lower than Friday’s close.

Panic abounds over what’s being described as everything from a typical stock selloff to a correction to another Black Monday.

Should you panic too? Probably not.

Today’s downturn arguably was expected. It’s also normal, and even a positive development for smart investors.

First, let’s look at how we got here. While it’s tough for any expert to pinpoint an exact cause for the severe stock slide that began last week, experts have cited multiple factors that could have contributed to what we’ve witnessed over the past several days. They include:

China’s economic turmoil continues. China has seen its share of recent financial trouble — from the country’s decision to devalue its currency to its own stock market drop of 9 percent today, Reuters reports. Because China has the second-largest economy in the world (after the United States), “concerns about a China-led global economic slowdown and tumbling commodities prices had U.S. traders fearing the worst,” as Reuters reported.

Stocks have been on a more or less upward trajectory for several years. That’s why experts like Money Talks News’ founder Stacy Johnson have been saying for months that the stock market is “long overdue for a pullback of 10 percent or more, known as a correction.” (Stacy wrote that in October 2014, after the Dow fell 6 percent in five days — and the Dow, the S&P 500 and the Nasdaq had lost their gains for the year.)

Corrections are a normal part of bull-market and general stock-market cycles. For example, mutual fund company American Funds notes that Dow declines “have been somewhat regular events.”

J.P. Morgan Asset Management recently noted of the S&P 500 that “despite average intra-year drops of 14.2 percent, annual returns [have been] positive in 27 of 35 years.”

Remember that stock correction Stacy wrote about last October? By spring and summer of this year, all three indices had recovered and hit record highs.

The threat of a possible interest-rate hike by the Federal Reserve looms. This was the catalyst for the stock market’s drops in June 2013, the largest of that year at that point. Stacy wrote at the time:

“Because stocks, as well as the overall economy, like low interest rates, that’s bad news.”

But rising interest rates are also good news in that they’re a sign of a “healing economy,” as Stacy described it.

Tim Courtney, chief investment officer of Exencial Wealth Advisors, tells CBS MoneyWatch:

“Household finances are growing more healthy … but you want to see a pickup in spending, too.”

Down stock markets also have an upside for so-called value investors like famed stock picker Warren Buffett, who has been known to purchase stocks in companies that are undervalued so he can profit when their prices rise. In 2001, he memorably likened stocks to hamburgers:

“To refer to a personal taste of mine, I’m going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the ‘Hallelujah Chorus’ in the Buffett household. When hamburgers go up in price, we weep. For most people, it’s the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don’t like them anymore.”

To learn more about how you can gain from today’s panic over a temporary 6.6 percent drop, check out Stacy’s story about the real Black Monday — Oct. 19, 1987, when the stock market had its largest ever one-day percentage plunge, of more than 22 percent: “5 Lessons From the Stock Market Crash of 1987.”

What’s your reaction to today’s stock market news? Share your thoughts with us in our Forums. It’s the place where you can speak your mind, explore topics in-depth, and post questions and get answers.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
7 Reasons Not to Move When You Retire
7 Reasons Not to Move When You Retire

Sunny skies and warm breezes sound great. But in reality, you might be better off retiring closer to home.

6 Ways to Guarantee Yourself a Steady Retirement Income
6 Ways to Guarantee Yourself a Steady Retirement Income

Saving is just one part of the retirement equation. Do this now to guarantee income in your golden years.

8 Products to Reduce Anxiety and Stress
8 Products to Reduce Anxiety and Stress

Current events have you feeling anxious? These Amazon products can take the edge off.

Retiree Households Lose $111,000 to This Social Security Misstep
Retiree Households Lose $111,000 to This Social Security Misstep

A study finds 96% of retirees make this mistake when claiming Social Security benefits.

15 Things You Should Always Buy at Yard Sales
15 Things You Should Always Buy at Yard Sales

You can save a ton of money — especially if you spot any of these items.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

9 Mistakes People Make When Cleaning With Vinegar
9 Mistakes People Make When Cleaning With Vinegar

Cleaning with vinegar can save you a lot of money, but using it like this can cost you.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

10 Things Successful Retirees Do Differently
10 Things Successful Retirees Do Differently

These habits and characteristics can help put you on the track to success.

4 States Where Taxes on Social Security May Fall Soon
4 States Where Taxes on Social Security May Fall Soon

These states are considering reducing — or even eliminating — income taxes on Social Security benefits.

7 Costly Health Problems That Strike After Age 50
7 Costly Health Problems That Strike After Age 50

As we age, our bodies wear down. Here is how to cut costs associated with some common ailments.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.