But this is not a time to panic. The US economy is showing a lot of resilience. Job openings hit a record high in March and 428,000 jobs were added in April, with gains in nearly every industry. The unemployment rate is basically back at pre-crisis lows. Black workers and workers with a high school degree (but no college) are seeing encouraging improvement as well. Overall, this has been the fastest job market rebound in decades. Families and businesses continue to spendhelping propel more growth and jobs.
The reality is that the stock market and many parts of the economy were overheated at the start of this year and needed to cool down. Home prices have skyrocketed more than 30 percent since the start of the pandemic. Housing demand far exceeds housing supply, especially for affordable homes. As the Fed has hiked interest rates, mortgage rates have jumped to their highest levels since 2018, which is starting to cause some people to think twice about buying.
It’s a similar story for stocks, which rose rapidly in the past decade of ultralow Fed interest rates. The massive market gains have fueled inequality as the rich have made eye-popping profits. While about half of Americans own at least some stocks, mainly in retirement funds, the bulk of the market gains go to the top 10 percent, who own almost 90 percent of US stocks. Giving back a little of those market gains isn’t terrible. It helps curb excess speculation in the market as the Fed reverses course. And while the mega-wealthy are losing billionsmany middle-class and lower-income Americans are gaining jobs and higher-than-normal pay raises.
The market pullback right now is consistent with a reassessment, the investment equivalent of a time out. While the Dow is just down over 9 percent this year and the widely watched S&P 500 index is off about 13%, this isn’t yet a “bear market,” when the key indexes fall 20 percent from their recent highs. Even with the recent pullback, the Dow is still up more than 55 percent in the past five years.
Risks clearly remain, and inflation is at the top of the list. The Fed is trying to tackle it by slowing the economy gradually, rather than slamming on the breaks and triggering a recession. As Fed Chair Jerome H. Powell said Wednesday, “No one thinks this will be easy.” Still, it’s important to remember that market corrections rarely lead to bear markets and recessions.
