KANSAS CITY, Mo. — Stocks continued their second-quarter slide Monday, sending market indices into bear market territory and further fueling fears of a fragile economy. We talked to an economist about what this means for the rest of us.
Frank Lenk, director for research services at the Mid-America Regional Council in Kansas City, Missouri, said the recent long run-up of stock prices was bound to correct at some point — though when isn't always clear.
"That the stock market, one of the indices, has declined by more than 20% from its most recent peak," Lenk said to describe a bear market.
That recent peak was at the beginning of the year.
Lenk said it's an arbitrary measure. A 10% decline is called a correction and a 20% decline is called a bear market, with corrections happening more frequently.
A bear market is the opposite of a bull market, which is when stocks are high. Lenk said the bull market we've been in is ending.
"We've been in a bull market for a very long time, one of the longest bull markets ever," Lenk said. "So, what goes up must come down, and we're due for a correction and now a bear market, but nobody can really predict when these things happen."
However, everything we've gone through in the past year could be indicators.
"I think the oil prices in particular and also the rate of recovery was really fast," Lenk said. "The downturn was really fast but the rate of recovery, at least nationwide, was at least twice as fast as our recovery from the Great Recession from a much deeper hole. So, there was concern things might be happening too fast."
He's talking about people demanding products we can't produce fast enough, which causes inflation and, in turn, causes financial assets — cash, stocks, bonds — to lose value. Then, you see people pulling their money out of financial markets.
"It can be a snowballing effect, and it could lead to a recession," Lenk said.
But it depends on whether the Federal Reserve can pull off what's called a "soft landing," raising interest rates just enough to curb inflation without sending us into a downturn.
Raising interest rates means it'll cost more to borrow money. At the same time, inflation just recently hit a 40-year high, but Lenk stressed that the economy is strong right now.
"Unemployment is low, jobs are easy to get, wages are rising — these are all great signs for an economy," Lenk said. "We have a long way to go to get from here to a place where employers are starting to lay off workers and jobs are hard to find."
It would take a bit before we would hit a recession, Lenk said.
"Make sure your financial house is in order to the extent you can make it," he said. "Don't get overextended at this point. You want to be careful but you don't really need to change your life, at least not yet."
Lenk said labor force participation is almost as close to what it was pre-pandemic, but we can't grow any faster. That's because the labor force is growing only a 0.5% to 1% a year and productivity is growing "1%, at best, a year."
"The economy needs to grow slower in order for this recovery to be sustainable, that's what we're aiming for," Lenk said.
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