The sharp sell-off of stocks on Wall Street, then in foreign exchanges represents both good and bad news.
What’s the good news in a hit on American workers’ retirement accounts? That it has occurred at all, because in 2014 there has been a significant amount of profit-taking. Stocks soared as the economy has recovered, to the point that the Federal Reserve has started to taper off its market-boosting bond purchases.
Americans are, in terms of wealth, far better off over the past couple of years.
The sell-off was stirred by a manufacturing report that failed to meet analyst expectations, and that is a normal enough reaction — if not an overreaction, as Wall Street tended to stabilize after that.
Economic growth in the fourth quarter of last year was higher than expected, though, and the trend lines remain pretty positive. The Fed’s vote of confidence in the durability of the recovery is also reflected in many private economists forecasting the best year of growth since 2005.
Part of capitalism are the days when one loses money on stock exchanges. What is important is the trend, and the trend remains pretty good. Let’s hope that politics on Capitol Hill does not manufacture another political crisis. That is probably, more than the economic reports, the biggest threat to recovery right now.