The stock market is known for its rapid rises and unpredictable falls, but last week’s brief meltdown was extreme even by those standards. When the markets opened last Monday, numbers were falling and traders were selling off their stocks in panic. Japan’s stock exchange fell more than 12 percent, the biggest plunge in 37 years. The S&P 500 — which tracks the stock performance of 500 of the largest U.S. companies — lost $1.3 trillion in value, or 3 percent, making it the worst day for the index since 2022.
Even the computer chip maker Nvidia, whose stock has been popular recently because of its innovations in AI, saw a serious drop of 15 percent. The VIX index, known as Wall Street’s fear gauge, had its biggest rise ever. But as the week went on, everything seemed to calm down. The markets recovered their losses, and company valuations started going back up. By Thursday, the S&P 500 jumped up by 2.3 percent, making it the best day since late 2022. As the markets closed for the week, traders were asking themselves: What just happened?
Experts have several different explanations for last week’s volatility: the latest U.S. unemployment data; increased interest rates in Japan; stock traders going on vacation in August; world events, including the U.S. presidential election; and more. Overall, the sudden dip and quick recovery are a good reminder that stock markets only tell part of the story of the global economy. “Markets shouldn’t command all of our attention,” said Justin Wolfers, professor of economics at the University of Michigan. “Keep your eye on the hard economic numbers that describe our present reality. Right now they are telling a much happier story with fewer reasons to worry than the narrative that’s been coming from Wall Street.”
Questions:
- What are some factors that possibly led to last week’s volatility on the stock market?
- Why does the stock market’s performance often provide an incomplete picture of the economy’s health? What other things should people look at to understand the current state of the economy?
Sources: Hur, Krystal, “Markets Saw A Massive Shift This Week. Here’s What Happened,” CNN, August 9, 2024. Wolfers, Justin, “The Stock Market Drama Was A Toddler Tantrum,” The New York Times, August 7, 2024.