Is a Recession Imminent?
Economists say the fluctuating stock market is merely a "correction" and not a sign of a recession.
October 2015
Aaron Gersh '16
Way back on August 25th, the Dow Jones plummeted to 15,666.44, dropping more than 10% from the beginning of the month. Ever since, the stock market has been dragging investors along on a wild rollercoaster ride. Some people who cite the Stock Market as the economy’s barometer, say that this stock market slump could be showing signs of an oncoming economic storm. While that may give good cause for investors to panic, there are many signs the point towards a healthy economy.
In article written USNews.com, author Kira Brecht used the word “correction” to describe the current status of the market. According to Brecht, the stock market has simply been blowing off steam, and this “correction” was bound to happen sometime soon. While yes, almost all recessions in U.S history have been preceded by declining markets and corrections, there have been three times as many corrections of a 10% drop or more than have been recessions. The last correction we had was back in 2011, and John Canally, economist at LPL Financial in Boston described a correction like this: “Now that we've had a correction, it's like the first snowstorm you get for the year in New England – people forget how to drive in the snow.” This most recent correction shows the true face of the stock market and was caused by a myriad of events like turmoil in China, fears of an interest rate hike, and a slight decrease in investor confidence.
While in the short term, things may seem a little rough, end of the year projection show signs of hope, and with the Stock market doing surprisingly well on October 2nd, there is evidence to back it up. The Dow Jones and S&P 500 is up around 5.26% from when it bottomed out late August, and went into the weekend of October 3rd at 16,472.37. Even though your parents’ 401(k)’s may have taken a hit as of late, there seems to be little to worry about at this time.