STEVE INSKEEP, HOST:
2018 was something of a banner year for the economy. The United States enjoyed healthy growth and very, very low unemployment. But the stock market is on track to finish the year with its worst performance since 2008 at the height of the Great Recession. What is happening? NPR's Jim Zarroli reports.
JIM ZARROLI, BYLINE: After her parents died, Barb Egler-Bailey spent a lot of time fixing up their house in Michigan. She sold it for a good price. And in September, she put some of the proceeds in a moderate-risk stock fund. The money was supposed to help fund her own retirement. But the investment has been a huge disappointment.
BARBARA EGLER-BAILEY: After the stock market here started going up and down like a rollercoaster, I saw that my fund had just dropped, like, 20 percent, dramatically, just since this fall.
ZARROLI: A lot of stock market investors have spent the past few weeks licking their wounds. The long bull market in stocks is ending the year more vulnerable than ever before. Quincy Krosby, chief market strategist at Prudential, says the mood in the market started to shift early in the year after a particularly strong jobs report.
QUINCY KROSBY: It was a very good report, in fact. And - but we saw wages moving higher, much more than the market had expected.
ZARROLI: That was good news for a lot of people, she said. But on Wall Street, rising wages also generated fears that corporate profits would soon be squeezed. Companies would have to pay more for workers. And Crosby says higher wages also raised the specter of inflation.
KROSBY: The market soon learned that any hint of inflation was going to be something that the Federal Reserve saw and that the Federal Reserve would act upon.
ZARROLI: The Fed had already been raising interest rates for more than two years. Now it appeared likely it would keep doing so. The only question is, by how much? In October, Fed chairman Jerome Powell said rates were far from neutral, which is Fed speak for, lots more rate increases are coming. Since then, stocks have fallen more than 20 percent. Then President Trump weighed in, criticizing Powell in an interview with Lesley Stahl on "60 Minutes."
(SOUNDBITE OF TV SHOW, "60 MINUTES")
PRESIDENT DONALD TRUMP: Our Federal Reserve is...
LESLEY STAHL: But also China.
TRUMP: ...Raising rates too fast because they think our economy's too good. And I say, I don't want you to - every time we announce a good quarter, you have to raise interest rates. I don't want that. I'm very unhappy with the Federal Reserve.
ZARROLI: The president seemed to suggest he might try to replace Powell. While investors didn't much like what the Fed was doing, they hate uncertainty even more. And Trump's words sometimes seem to be driving the market even lower. Lawrence White is a finance professor at NYU's Stern School of Business.
LAWRENCE WHITE: I think the administration has become even more erratic in both its statements and its actions.
ZARROLI: White says the ongoing fallout from the Trump administration's aggressive trade policies have been especially harmful. The U.S. and China have been slapping tariffs on each other's imports. And there's no hint of a truce anytime soon. White says that with Democrats taking control of Congress, the dysfunction in Washington is only going to get worse.
WHITE: I think a lot of the uneasiness in the markets currently is this concern about future turbulence. I don't think it goes away for at least the next two years or so.
ZARROLI: White says stocks have been doing so well for so long that a lot of people are too young to remember what a real bear market is like. For them, this is a valuable if painful reminder that markets can go down as well as up. Jim Zarroli, NPR News.
(SOUNDBITE OF KETTEL'S "BOOTMENS") Transcript provided by NPR, Copyright NPR.
