There is currently a panic occurring due to the volatility of the stock market. There has been growing concern over the state of the banks in Europe. This made European stocks drop, and the Dow followed suit closely after. Investors have been worried about Europe’s economic health and decided to sell their riskier investments and escape to safety. Additionally, Janet Yellen, the Federal Reserve Chair of the United States Central Bank made concerning comments that spurred further doubts about the state of the market. She suggested that financial risks in China especially had the ability to negatively affect the United States’ economy, and that negative interest rates were being looked into as a viable option.
This is yet another panic revolving around the United States’ economy. The situation is being contained by the Federal Reserve, but, as is common, it is being exacerbated by fear. The economy is not all doing badly; for example, the labor market has been doing quite well. It should also be assumed that Asian traders will become more involved after the passing of the Lunar New Year.
Companies are reacting in different ways to this mass trepidation. Executives of larger financial companies, such as those at JP Morgan Chase, are buying shares of their company, just as Amazon is buying back a significant number of shares of its stock. While these corporate buybacks should have taken place before earning season, this is still a good move in helping the economy recover.
All in all, the stock market is not all the doom and gloom it is being made out to be. Ms. Yellen’s comments are concerning, of course, however we all must remember the Federal Reserve does not mandate all arenas that are making progress. For example, they have no jurisdiction over the job market, which is doing very well, and they have no control over pricing stability. These are two areas that have been relatively stable and on the rise, but that is not what everyone is focused on.
If there is anything we should currently be paying attention to, it is that United States banks are becoming more selective in their lending. Financial risks in China will have less of an impact on our economy than people think. Loan losses are the real threat. However, panic should not be our first response. We must not give into the chaos surrounding the stock market currently, and focus on rationally doing what we can as companies and individuals to best help our economy.
For more information on stock market trends, check out CNBC’s article on panic in the stock market.