The tumultuous stock market has inspired images of the apocalypse: "Meltdown," "Armageddon," "blood bath" and similar terms all have been used to describe Monday's historic plunge, in which stocks lost half a trillion dollars in value.
But whether such dark descriptions turn out to be on target or just overheated rhetoric will not be known for months, as the troubled market tries to recover its lost ground. Already, the effects are rippling through the U.S. economy, hurting some people, helping others and leaving a big majority of bewildered bystanders who--for the moment, at least--are wondering what all the clamor is about.
Only 47 million Americans own stock, either directly or in mutual funds, according to the New York Stock Exchange, in contrast to some 200 million who do not. "I don't think there's much to worry about," said Ken Ehlers, a bus driver from Baldwin Park who is witnessing Wall Street's trauma from the sidelines. "I feel the government won't let it go too far. It'll step in."
Nonetheless, the bludgeoning of the bull market is already beginning to affect those who have never had cause to look up a single stock quote in the newspaper. Interest rates have dropped dramatically as money has flowed from stocks to bonds, a trend that could enable many Americans to purchase homes who could not afford to make the monthly payments just a week ago.
At the same time, the market's helter-skelter leaps and dives have made some consumers wary of major purchases. And that is the sort of behavior that could drag down the economy and usher in a self-fulfilling recession.
A person's age and investment strategy dictate vulnerability in the current financial tempest. To young people with money in long-term stock funds, such as many individual retirement accounts, the decline amounts to a "paper loss," one that they have years to recover from. But for workers near retirement, who were counting on stock portfolios to help pay the bills in the near future, the market plunge is anything but abstract.
Together, all these economic cross-currents have spread financial unrest throughout the world, and they have highlighted the vulnerabilities of the U.S. economy at a time in which it approaches the fifth year of a recovery.
"Where you start to get the concern is in how are consumers reacting," said Murray L. Weidenbaum, director of the Center for the Study of American Business at Washington University in St. Louis and a former chairman of President Reagan's Council of Economic Advisers. "To what extent will consumers shave their purchases, postpone, buy smaller items? This is a period of rethinking, of re-examination."
For some, the re-examination has been unpleasant, to say the least. Fulton Sanford, 60, invested the bulk of his money in the savings plan of his employer, Rockwell International, where he works as a program business manager. In recent days, he has seen the value of his nearly 11,000 shares of Rockwell plummet from a 52-week high of $30.875 a share to $14.875 at Monday's close--for a loss of greater than $160,000 at the lowest point. (Rockwell stock rebounded to 19.875 as of the close on Friday.)
"It's a good stock, and I feel it'll go back up, but if it doesn't before I retire, I'll be hurting," said the Eagle Rock resident, who plans to retire next January after 24 years with the company.
Older Workers Vulnerable
"These people are stuck," Ellen Sloan, a financial planner with the Mutual Benefit Life Insurance Co. in Los Angeles, said of older workers stung by losses in their stock portfolios. "If the market continues to stay down for the next couple of years, this could significantly change their outlook and the kind of life style they'll be able to live."
People's reactions have been unpredictable and diverse. Sloan, 31, who has put off plans to trade in her 1974 Volvo for a new Jeep Cherokee, has one client, a retired dietician, 65, who decided to move $85,000 out of mutual funds, after the market drop. The woman switched the money into a kind of life insurance, known as "single premium," that offers tax-deferred investment income.
Yet a more adventurous client, a 45-year-old consultant, was eager to plunk down a recent windfall of $50,000 for new stock purchases, a move Sloan counseled against. "I told him he was lucky he didn't get the money a month earlier," observed the financial planner who has counseled clients to limit--though not necessarily eliminate--stock investments.
Ultimately, the behavior of millions of Americans will determine whether the financial damage to the stock market is contained or goes beyond it to undermine the rest of the economy. And that behavior is being influenced not only by the hard reality of how much money they have but also by the intangible of how much confidence they have that hard times are not imminent.
'Sense of Uncertainty'