Local expert: Don’t panic over stock market plunge

Washington and Lee economics professor explains reasons for drop, what could happen next

ROANOKE, Va. – The stock market took a hit Monday.

It was the worst point drop ever for the Dow Jones, which finished down more than 2,000 points -- more than 7%.

This leaves many wondering about their 401(k) and the economy, but, even with the coronavirus concerns, Washington and Lee economics professor Martin Davies says not to panic.

He says any guess as to how the economy ends up after the virus runs its course is just speculation.

“So, it’s one of those strange things, the more panicking we do, the more damage we potentially do," Davies said.

The U.S. hasn’t seen a drop like this since the recession a decade ago, Davies says.

He believes, depending on how severe the drops are, recovery could be quick or could take longer if more damage has been done.

“The market is reacting to this uncertainty. It doesn’t really know how bad this is going to be," Davies said.

Davies says there are three reasons for the downturn.

  • Supply shock: Because we get so many product parts from China, U.S. production is reduced.
  • Demand shock: We’re buying less, going out to eat less and flying less.
  • Financial shock: Banks are less willing to lend.