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Why the stock market is so volatile right now

SCOTT SIMON, HOST:

Another month of solid job growth for the U.S. economy. New data for April shows the unemployment rate near a 50-year low, and yet the Dow ended down yesterday again for the sixth week in a row. In fact, it's been a pretty miserable year in the markets. NPR's David Gura joins us now. David, thanks for being with us.

DAVID GURA, BYLINE: Thank you, Scott.

SIMON: How do you explain the mood on Wall Street - the worry?

GURA: Well, fear has been building for months now. Inflation continues to be at a 40-year high. And the big worry among investors is, will the Federal Reserve be able to tame inflation without sparking a recession? This week, the Fed raised interest rates by an additional half a percentage point, as Wall Street expected. And Fed Chair Jerome Powell signaled it's likely there will be more hikes of that size going forward. David Sekera is the chief U.S. market strategist for Morningstar, and he says the Fed is in a really tough spot.

DAVID SEKERA: And this can be a very delicate balancing act for them to both bring down inflation but, at the same point in time, to not overly tighten monetary policy so much that it results in an economic slowdown.

GURA: Or worse yet, Scott, a recession. You know, this week in the span of just a few hours, really, stocks went from having one of their best days since 2020 to having one of their worst. And this past week was really an extreme example of the kind of volatility we've seen all year - a relief rally after the Fed raised interest rates and then, just the next day, a really stunning reversal as Wall Street more fully recognized how much is changing. Interest rates have been near zero for years, and now they're rising pretty fast. Borrowing costs are going up for you, for me, also for companies with billion-dollar balance sheets. They're having to adjust, and markets are still processing how the economy and the business environment are changing.

SIMON: How is the business environment changing?

GURA: Right now, there's a lot of uncertainty not just about inflation, but there were supply chain issues. China is cracking down on COVID with new lockdowns, and there is the fallout from the ongoing war in Ukraine. One sector you want to pay close attention to is technology. Tech companies have gotten hammered, and that matters because they're such a big part of the S&P 500, which means they have a huge impact on overall market performance. Right now it's not a good time for tech companies, and that's being driven in large part by this change in consumer habits coming out of the darkest days of the pandemic. Americans are spending again not on goods, but on services. They're going out. They're taking trips. And, Scott, that's benefiting some companies. Travel stocks, including Southwest and United Airlines, are up this year. And then there are the energy companies. Of course, it's shaping up to be a banner year for ExxonMobil and Shell.

SIMON: In theory, what could turn things around?

GURA: Well, ending up with a recession is obviously the worst-case scenario here. And I'll say that while many economists on Wall Street are focusing on assessing the likelihood there could be a deep downturn, most of them are not convinced we're going to see one in the near-term. The Fed chair sounded a confident note on Wednesday about the Fed's ability to slow the economy just enough to fight inflation without causing a recession.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: I would say I think we have a good chance to have a soft or softish landing or outcome, if you will.

GURA: A soft landing is considered the ideal scenario, whereby the Fed can cool the economy just enough to rein in persistent inflation, Scott, but not enough to kickstart a recession.

SIMON: And what does all that mean for investors?

GURA: Well, the message from analysts - and I hope you'll forgive the cliche here - is to keep your seatbelts fastened. What we saw this week is likely to continue, according to Morningstar's Dave Sekera.

SEKERA: I think we're actually going to see a lot more of this volatility for at least, you know, the next several weeks, if not, you know, a couple of months.

GURA: It's important, though, to keep this in perspective. Investment advisers always tell individual investors they should have a long-term time horizon. And over the past few years, markets have done incredibly well. It wasn't that long ago they were setting new records, and strategists like Sekera expect that resilience is likely to continue. And overall, the U.S. economy is pretty strong. Some analysts believe it's pretty well-positioned to deal with what the Fed is doing - this increase in interest rates.

SIMON: NPR's David Gura, thanks so much.

GURA: Thanks, Scott. Transcript provided by NPR, Copyright NPR.

Based in New York, David Gura is a correspondent on NPR's business desk. His stories are broadcast on NPR's newsmagazines, All Things Considered, Morning Edition and Weekend Edition, and he regularly guest hosts 1A, a co-production of NPR and WAMU.