MINNEAPOLIS (FOX 9) - The Dow Jones Industrial Average soared 1,086 points Wednesday, or 5 percent, the biggest one-day percentage gain for the index since 2009.
The surge wipes out major losses from Christmas Eve and continues a roller coaster trend across the broader stock market in recent months. Before Wednesday’s gains, the S&P 500 had entered a bear market, down 20 percent from early October’s highs.
Slower global growth, uncertainty over the government shutdown and trade disputes, and the Federal Reserve’s interest rate hikes have contributed to the market volatility. But it may have been inevitable that stocks would move lower and investors should not panic, financial advisors said.
“It’s been nine years. Nine years since a drop,” said Skip Johnson, a financial advisor at Great Waters Financial in Vadnais Heights. “So by some measures, we’re just overdue. Markets do go up and down.”
President Donald Trump has long pointed to stock market gains as a sign his economic policies – such as tax cuts approved in late 2017 – are working. Now that the market has sputtered, Trump has said the Fed’s interest rate increases are to blame.
“They're raising interest rates too fast,” the president said on Christmas. “That's my opinion but I certainly have confidence but I think it'll straighten. They're raising interest rates too fast because they think the economy is so good."
A Trump economic advisor said Wednesday that Fed Chairman Jerome Powell’s job was “100 percent” safe. Days earlier, the president had apparently been considering how to fire Powell, even though the Fed operates independently from the White House. President Trump nominated Powell to the job earlier this year, but has been critical lately.
Treasury Secretary Steve Mnuchin’s job was also safe, the economic advisor said, despite Mnuchin’s unusual attempt to calm nervous investors over the weekend. Mnuchin held calls with officials from major U.S. banks to ensure they had enough money to continue lending, a major factor in the 2008 downturn.
But the issue had not been on the radar of many economic analysts until this weekend’s calls, leading to confusion.
“We continue to see strong economic growth in the U.S. economy with robust activity from consumers and business,” Mnuchin said in a statement announcing the phone calls with the banks.
Nevertheless, small investors have focused on their shrinking retirement account balances in recent weeks. The stock market swoon has been so severe that the Dow would require two more 1,000-point gains like Wednesday to return to positive territory on the year.
Investors should avoid entering or exiting the market based on emotions, Johnson said.
“If you need the cash in the next couple years, you might want to course-correct, adjust, maybe get a little more conservative,” he said. “If you don’t need the money for awhile, let’s be long-term, because markets have rewarded investors over the decades, and we certainly expect that to continue going forward.”