ICYMI, fears that the U.S. is headed for a recession have sent stock markets across the globe into freak-out mode. For the third day in a row Monday, stocks slumped, with the Dow Jones Industrial Average tumbling 864 points, or 2.2%, as of the afternoon. Meanwhile, the Nasdaq composite and S&P 500 fell 2.8% and 2.4% respectively at the time of writing.
Why is the stock market down today? For starters, look no further than the U.S. jobs report. Released late last week, the data showed the highest unemployment rate since October 2021. The report triggered a recession predictor known as the “Sahm Rule.” Named for former Federal Reserve economist Claudia Sahm, the benchmark, as the Federal Reserve Bank of St. Louis explains, “signals the start of a recession when the three-month moving average of the national unemployment rate rises by 0.50 percentage points or more relative to the minimum of the three-month averages from the previous 12 months.” Despite the fact that this time around Sahm herself is calling for calm, the Sahm rule, has without fail, predicted every recession since 1970. Yikes.
The weaker-than-expected jobs report is but one of the economic indicators signaling that the U.S. could face rough waters ahead. Also of concern for investors was a report released last week that showed a slowdown in manufacturing. According to the Institute for Supply Management, manufacturing PMI (which stands for purchasing managers index, AKA, an economic indicator made up of reports from private sector manufacturers) dipped to 46.8% last month, the lowest reading since November. “Economic activity in the manufacturing sector contracted in July for the fourth consecutive month and the 20th time in the last 21 months,” according to ISM.
One of the other factors that could help answer the question “Why is the stock market down today?” is last week’s Fed decision to hold rates–which have been at a 23-year-high–steady. Turmoil in the markets is now spurring calls for an emergency rate cut, as proponents say the Fed has waited too long to take action. Then, you have tech stocks. While they have driven much of the success in the markets recently, investors are getting cold feet over the worries that investments in artificial intelligence won’t live up to their hype.
So, Now What?
Where do things go from here? Only time will tell, but there’s one piece of advice many experts seem to agree on: Don’t panic. Although it’s hard not to in the face of chaos, acting impulsively when it comes to your long-term investments can result in some really bad decisions. If it helps to calm your emotions, turn off the TV, log off of X and give your brain a break from the not-so-good news. For others who find calm in camaraderie, InvestingFixx, HerMoney’s investing club for women, could be a great place to talk through what’s happening in the markets with other like-minded investors. The best part? Your first month of InvestingFixx is free.
That said, in situations like this, there are questions you should be asking yourself about your investments and your financial picture overall. For example, do you have adequate liquidity? Are you diversified enough? Have you rebalanced your holdings so that your asset allocation — after what has been an extended bull market — is where you want it to be? Finally, do you save enough with each paycheck? Now is a good time to revisit these questions on your own or better yet, with a financial professional who can help you cut through the chaos.
And then — channel Sahm and or those folks across the pond (your choice): Keep calm and carry on.
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