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Marketplace Morning Report

Market drop based on fear

Marketplace Staff Aug 5, 2011
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BOB MOON: So, what caused that 500-point drop in the Dow yesterday? And Why? President Obama signed the debt deal — and we avoided default. So how do people explain the scary panic? Marketplace’s Gregory Warner joins live this morning, to try. Let’s take a deep breath now, good morning, Gregory.

GREGORY WARNER: Good morning, Bob.

MOON: OK, so why, why now?

WARNER: Well, that’s the question everyone’s asking and we’re reading all sorts of explanations in newspaper articles — we’re talking about it on the radio — about fears of the soft economy and a second recession, even. Here’s David Hefty of Hefty Wealth Partners in Indiana. And he says it’s not that those fears aren’t justified, it’s just that none of them arrived on the scene yesterday to explain the market drop.

DAVID HEFTY: We know about all the major stories, right? We know about debt in Greece, we know about the debt problems in the U.S., none of this stuff is new. But the markets have always gone up. So we always had to come up with some reason or a lie why the markets actually rose.

WARNER: Now he says the market is correcting for false optimism. Of course more optimistic analysts say the opposite.

MOON: There is no predicting the herd, of course. But the markets had been dropping for more than a week. Doesn’t this just reflect a general sense of fear on Wall Street?

WARNER: Sure. I’m just saying that those fears can’t explain why the markets moves up or down on one way. This morning the monthly jobs report from the Labor Department is out, and lots of investors are watching that number very closely, but hey, who knows how they’ll respond.

MOON: That’s right. Marketplace’s Gregory Warner, thanks.

WARNER: Thanks.

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