Investors woke up to a very ugly Monday morning the second week of March as trading on the U.S. Stock Exchange halted with a roller-coaster market plunge of 7% almost as soon as it opened. Stockholders were already sneezing from the global spread of coronavirus when plummeting oil prices were added to the list of worrying symptoms. Stocks haven’t fallen so hard in a single day since August 2011.
The previous week, oil prices dropped 10%, the biggest decline since 2014 and Brent Crude prices saw their biggest drop since 1991, when the U.S. first invaded Iraq.
All this pushed investors to take action, leading to Monday’s stock market nosedive.
March 9, 2020 was the first time since 2008 that trading has halted—an automatic process that happens to avoid the plunge worsening. Trading picked back up after 15 minutes.
And just a week later on March 16th, the Dow fell almost 3000 points – Wall Street’s worst day since 1987.
But what does this mean for the overall economy and, most importantly, you as a consumer?
What’s Ahead:
An erosion of confidence
Less borrowing
Even if you don’t trade, the stock market affects you as a consumer. A stock market drop, if not reversed, can lead to a recession.
Even without a recession, poor stock market performance can hurt consumer confidence, leading people to hold off on buying that new house or car. That’s less money being pumped into the economy, hurting industries across the board.
Longer work periods for those close to retirement
If you have any investments, the stock market will depress your own bottom line.
You may have a 401(k) or IRA that you’re counting on to support you in your later years. Younger investors are always warned that the market will see plenty of lows and highs, and it’s important to leave the money alone and let time work its magic.
For those close to retirement, a stock market plunge can mean continuing to work longer than you’d planned to let those accounts rebound.
Employers react
Less job security
If you’re employed, your business may invest in the market, meaning that a loss could affect your next pay raise and, eventually, your job security.
But even if your business doesn’t invest, erosion of consumer confidence will likely affect income. You’re likely to be cutting back, and so will your company, meaning less money coming in. This may be reflected not in pay cuts or layoffs. but a general call for each department to operate more efficiently.
Less travel means fewer travel-related jobs
Before Monday’s stock market plunge, economists were already predicting issues with the economy due to the coronavirus. If consumers choose not to travel, that hurts restaurants, hotels, and travel providers, as well as attractions across the world.
Even without a mandatory quarantine, consumers may choose to stay home rather than dine out or avoid events where large crowds gather, such as concerts.
Less money equals less spending
No more pricey purchases
Of course, there’s no denying the direct effect that poor stock market performance has on the overall economy. When investors have an excess of money, they feel free to spend.
As they see that investment income dwindle, they are more likely to cut back. This affects sales of everything from luxury goods to homes and cars.
Mortgage defaults
If a poor economy leads to job losses and cutbacks, consumers may be unable to pay their mortgages. This could lead to foreclosures, which have a long-term impact on the real estate market as a whole.
Consumers who try to get out of their homes before foreclosure sets in may find they have to sell it at a significant loss just to get someone else to take over the mortgage, further dropping home values.
Advice of the hour – do not panic
A dramatic drop in the stock market tends to always have an impact on the economy. However, experts are advising consumers not to panic.
Investors should not make any rash decisions and you should carefully weigh your options on a day like today just like you would on any other day. And you should continue to enjoy that dinner out or a new smartphone, as long as you can afford it.
For some other helpful tips, watch MU30’s video below:
Summary
We know at this point that your spending – as well as your 327 million fellow citizens – has a direct effect on just how much this latest plunge will hurt the overall economy.
But, on a day like today, it’s a lot of wait and see as we watch along with the rest of the world. Grab a beer, but perhaps rethink the Corona.
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