Finance Professor: Wall Street Dip Will Not Last

A Tennessee Tech Finance Professor said the last week’s downturn on Wall Street will likely not last.

Assistant Professor Justin Lee said the market has entered a correction period, meaning it is down over ten percent but less than twenty. Lee said the drop the result of concerns about the labor market. July saw fewer new jobs than expected and the unemployment rate rose over a quarter of a percent in the past two months. Lee said it was reported Thursday that jobless claims across the nation were lower than expected, likely meaning more people are simply switching jobs than expected.

“They were expecting about, jobless claims of 240,000 cases, whereas the actual observation came below that which was 233,000,” Lee said. “So this news really mitigated the concern that the job market was going to be bad.”

Lee said he does not expect the decline to continue for long as the Federal Open Market Committee is meeting in September to consider lowering the interest rates. Lee said a majority of investors expect the rate to fall by a quarter of a percent, but the recent economic dip may lead the committee to decrease rates by half a percent.

“Since 1974, there have been about twenty-four correction periods, but only five resulted in an actual bear market of seeing (the) overall stock market dropping more than twenty percent,” Lee said. “So usually a correction period is something that could be considered as, you know, just letting out the hot air.”

Lee said a rate increase would be the natural progression for the economy after the Federal Reserve lowered interest rates for the economic challenges of 2020 and 2021 and then had to quickly increase them when things bounced back too quickly.

“The overall economic activity is cooling down,” Lee said. “People are, you know, spending less money and then the financial portfolios of the companies are slowing down a little. But, you know, it’s really about time that we see a bit of a turnaround where, you know, so basically getting ready (to go) back to hit the gas again to revitalize the overall economic activity.”

Lee said the decline should only be concerning to those who are already invested in the market.

“It could be a good time for you to go back and see whether any changes that you would like to implement would be made,” Lee said. “Why? Because the market changes pretty quick, whereas your reaction to it may not be always available because you may be doing something else. You may be spending good time, you know, not thinking about all this. So it could be (a) really wise time to review and re-balance your portfolio from more risky assets to, you know, less risky and safer ones.”

Lee said the decline in stock prices could also pose a good opportunity for people to get a discount on stocks they are interested in.