WACO, TX (FOX 44) — The stock market takes a big hit today as the DOW dropped 300 points earlier this afternoon.
The volatile behavior seen this week can lead to higher interest rates with our already high inflation costs.
Local economist Ray Perryman says prices in the stock market reflect future earnings companies will make based on internal and external influences like the government.
However when the government is split on decisions, it gives the stock market flexibility.
“Investors like certainty and there is this perception out there that if you have different parties controlling the different houses of Congress, they’re unlikely to do much of anything,” said Perryman. “Markets don’t necessarily don’t see that as bad news.”
A&M Central Texas economic expert, Dr. Rob Tennant says the stock market likes predictability on government legislation to have better control on navigating the economy.
“That prevents a lot of legislation from happening very quickly which removes some of the uncertainty in the market,” said Dr. Tennant. “It makes it more predictable for the market, so while Americans may not like the gridlock, the market might not be as bothered by it.”
Even though gridlock can help the stock market, Perryman says what we’re seeing right now is the result of covid and other outside factors.
“It’s the Federal Reserve, which is independent of the party in power who has to respond to those,” said Perryman” “That’s what’s been driving the stock market lately. I think its the uncertainty regarding monetary policy and inflation more than any particular political party.”
As interest rates increase, the hope is inflation will drop.
“If we start seeing inflation begin to subside so that the reserve eases off on some of their monetary tightening then I think you’ll see the market start recovering, whoever wins the house and the senate in these midterm elections.” said Perryman.
Outside of the potential relief with government gridlock, Dr. Tennant says immediate support for the stock market will be slow with trends leaning towards a recession.