Why is the stock market currently so volatile?

Another month of strong job creation in the United States. Despite the fact that new data for April showed the jobless rate reaching a 50-year low, the Dow fell for the sixth week in a row yesterday. In reality, the stock market has had a very bad year. David Gura of NPR joins us now. Thank you for joining us, David.

BYLINE: DAVID GURA Scott, I appreciate it.

SIMON: How can you explain the anxiety on Wall Street?

GURA: Fear has been growing for several months. Inflation has remained at a 40-year high. Will the Federal Reserve be able to control inflation without triggering a recession, which is a major concern among investors? The Federal Reserve boosted interest rates again this week Interest rates have been around zero for years and are now rapidly increasing. Borrowing costs are increasing for you, me, and businesses with billion-dollar balance sheets. They’re having to adjust, and markets are still analysing the changes in the economic and business climate.

SIMON: What is changing in the corporate environment?

GURA: There is a lot of concern right now, not just about inflation, but also about supply chain issues. China is imposing further restrictions on COVID, as well as the consequences from the current conflict in Ukraine. Technology is one area where you should pay special attention. Tech companies have taken a beating, which is significant because they make up such a large portion of the S&P 500, meaning they have a significant impact on overall market performance. Right now is not a good time for digital companies, and this is due in large part to the shift in consumer habits that has emerged since the pandemic’s deadliest days. Americans are once again spending on services rather than products. They’re leaving. They’re going on vacation. And, Scott, this helps some businesses. This year, travel equities such as Southwest and United Airlines have performed well. There are also energy firms to consider. Of course, ExxonMobil and its subsidiaries are expecting a blockbuster year.

SIMON: What, in theory, could make things better?

GURA: Well, the worst-case scenario is that we wind ourselves in a recession. And, while many Wall Street economists are focusing on determining the potential of a deep downturn, the majority of them do not believe one will occur in the near future. On Wednesday, the Fed chair expressed confidence in the Fed’s ability to slow the economy just enough to combat inflation without precipitating a recession.

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JEROME POWELL: I believe we have a decent possibility of a gentle or softish landing or outcome, to use your terminology.

GURA: A soft landing is the ideal scenario, Scott, in which the Fed can slow the economy just enough to keep persistent inflation at bay without triggering a recession.

SIMON: So, how does this affect investors?

GURA: The message from experts is to keep your seatbelts fastened, and I hope you’ll forgive the cliche here. According to Morningstar’s Dave Sekera, everything we witnessed this week is likely to continue.

SEKERA: I believe we’ll see a lot more of this volatility over at least the next few weeks, if not a couple of months.

GURA: It’s vital to put things in perspective, though. Individual investors should always have a long-term time perspective, according to investment advisers. Markets have performed exceptionally well in recent years. It wasn’t long ago that they were breaking records, and strategists like Sekera believe the trend will continue. In addition, the US economy is doing well. Some analysts feel it is well-positioned to deal with the Fed’s interest rate hikes.

SIMON: David Gura of NPR, thank you so much.

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