Dollars and Sense: Don't panic just yet

Off the kiddie coaster. Last week we talked about the stock market’s roller coaster behavior, but we’ve been on a kiddie coaster compared to the week gone by. Since mid-September, the Dow is down more than 1,000 points, but half of that decline has been in the past week. Lots of 100- and 200- and even a few 300-point days for the Dow.

No cause for panic. Last week I also said these gyrations and declines created no reason to panic. I still feel that way. The markets have been setting record highs for months. On average since World War II, the Dow has what some analysts call a “bull market correction”—a decline of 10 percent or more in the midst of an “up” market—about every 18 months. It’s been more than three years since this bull market that started after the financial crisis in 2008 has had such a correction. And even now the Dow is down only about 6 percent from its Sept. 18 high. We remain well within the normal trading ranges.

Not without cause. Even so, I can’t deny that unusual things are happening in the world. The markets aren’t moving for no reason. Growth in Europe is weak. That seemed to be the big driver last week. Bad news out of Europe, especially Germany, caused the International Monetary Fund to revise downward the global growth estimate earlier this month, from 3.4 percent to 3.3 percent. That may not sound like a lot, but that tenth of a percent represents $85 billion in economic activity.

That’s not all. It wasn’t just slowing global growth that spooked the markets. The Ebola epidemic continues to create fears, and here in the United States we saw a couple of weak economic reports, particularly one on Wednesday indicating weak retail. When that report came out, the Dow fell more than 170 points. But at one point it was down more than 250 points and overseas markets dropped even more. In the hours after the U.S. retail report came out, key exchanges in Germany and France fell an eye-popping 2.9 percent.

What, me worry? After all that, am I still saying nothing’s wrong? Don’t misunderstand me. I’m not saying that. I’m just saying that there’s nothing more wrong than usual. A lot of these problems have been in the economy for months, even years. Now traders, who know the markets can’t go up forever, are starting to pay attention and protect the gains they’ve made over the past few years. It’s also important to note third-quarter earnings reports we’ve seen so far have been good, and we got an employment report this week that borders on the spectacular. New claims for unemployment benefits last week fell to 264,000. That’s the best number since the end of the tech boom in early 2000, more than 14 years go. We’ve got a lot of problems in this economy. The deficit. Runaway healthcare costs. A lot more. They’re not new problems. But indicators show we’re in the midst of a stock market correction and not on the brink of an economic disaster.

The week ahead. It’s going to be a pretty light week for economic reports. The Consumer Price Index report will come out from the Department of Labor on Wednesday. That will be the big report for the week. Otherwise, traders, analysts, and politicians will be keeping an eye on the Three E’s: Europe, Ebola, and earnings reports.