Recent worries about a credit downgrade, double dip recession, high unemployment, slow economic growth, European debt, and a deteriorating housing market has taken a toll on the stock market.
The drop in stocks "will have repercussions back on the economy," stated Barry Bosworth, who is an economist at the Brookings Institution. Bosworth has studied the link between consumer spending and stock market performance .
Michael Niemira who is a chief economist at the International Council of Shopping Centers states that 40% of consumer spending comes from the richest 20% of Americans. This is important information because the decrease in stock prices could slow spending by upper-income Americans.
The wealthy have gotten used to the violent swings the market has had. But when will they start to question the economy and start cutting down on their spending ?
The future doesn't look too bright as of now, most average consumers have been spending less. Companies are holding on to their cash and are not hiring. Only 19% of small business owners plan to add employees during the next year. Is this hinting to a double dip, a lost Japanese decade or slow growth?
Who can say if the 10% free fall the Dow Jones had since July is a short term trend or a sign of what's to come ? Will investors who didn't get phased by this week's one day 513 point drop be rewarded or punished for not exiting before the market drops harder? What should they do now ?
There seems to be many issues that can hurt our economy in the next few months. But a savvy investor knows what to do in a time of uncertainty and keeps his calm.