Since the start of 2025 the DOW is down around 15%, the NASDAQ 22.8%, and the S+P 500 about 17.5%. By comparison, when the global pandemic, Covid 19, struck the world in 2020, the S&P 500 index dropped 34%, 1,145 points. Compared to two years ago, all these indexes are up and many of these people are not selling their stocks, but the past week has seen a massive erosion of wealth (over $6 trillion) and while this may not impact the lives of the wealthiest amongst us, it does impact the mood of anyone and everyone invested in the markets.
It is ironic that this massive market plunge would happen during FINANCIAL LITERACY MONTH but maybe a good time to brush up on some aspects of market plunges and what they can mean to help put things in context. These are some pointers:
1. I have yet to meet anyone who loves losing money. Some handle it better than others, but no one likes to see their wealth eroded.
2. Most big market corrections are expected to happen inevitably and do so because of the cyclical nature of the economy. Some bet for this to happen and can reap huge gains. Often corrections and crashes happen because of shocks and/or surprises to the system. 9/11, Covid, the Russia-Ukraine war, etc. Most times these are a result of the actions of individuals, politicians, or countries. Since 1900 there have been around 34 global market crashes.
3. Most wealthier people expect market corrections, plan for them, and minimize their impact as best they can. Many wealthy people welcome corrections as they see them as buying opportunities. Some even love deep recessions in the hopes of buying up bargains.
4. Many very wealthy people stock up on cash for moments like this: Warren Buffet's Berkshire Hathaway is sitting on $334 billion. Often big fortunes are created or enriched at moments like this.
5. It is those not invested in markets (a smaller number, about 60% have retirement funds, IRA's, etc) that stand to suffer the most if a market correction/crash triggers job losses or fuels inflation.
What might lift the mood of markets?
1. Many believe we are entering an era of stagflation (slow growth, higher inflation) and most see real estate as a wise place to park their money.
2. Interest rates could come down and some believe what is happening is designed to force this to happen which could lessen the load of debt for many and lower mortgage interest rates to fuel home buying!
3. After a deep plunge, sometimes the recovery/upside fuels the next narrative, one of wealth gains. Then moods swing in the other direction.
4. If the tariffs that have caused this plunge are lifted or reduced in areas, or produce their desired result (more manufacturing in the US), this too could lift markets and fuel employment and lift the mood.
5. The word 'tariff' is another word for 'taxes'. But that's far less impactful on the mood of markets than the word "Trade WAR" when others retaliate with their own tariffs. Very few people like that word and it never fuels confidence.
The US was actually doing quite well in fueling manufacturing in the US prior to these tariffs. About $500 billion in manufacturing as a result of the CHIPS act of 2022 and since the start of this year over $1 trillion more. The biggest challenge in manufacturing in the US may not just be the time and cost, but more importantly the labor with the necessary skills to do the job and the highly sophisticated equipment and machinery to do so.
Yes, moods impact market sentiment. Moods also shift and change.
