As markets reporters, our most important responsibility is to provide readers with some helpful context for what’s going on. This is particularly important during periods of heightened volatility like what we’ve been experiencing for the past few months.
For this post, we’re going to skip the laundry list of reasons why stocks might be getting whipsawed right now. Rather, we’re gonna think longer term and bigger picture.
Every major sell-off in history has been accompanied by a mix of economic concerns, monetary policy shifts, geopolitical tensions, or some other source of consternation that might make a rational person demand a higher premium for putting their capital at risk. The details are different each time. But structurally, it’s generally the same story: it’s risky out there.
The explanation behind this is complicated. But ultimately, it’s about people wanting a better future. Human ingenuity develops the technology and processes that make the goods and services we want and need cheaper and more accessible. Standards of living go up for more and more people, and aggregate demand and profits go up.
It’s important to note that a major reason why the big stock market indices go up is because obsolete companies die and are regularly being replaced by innovators and disruptors who have all sorts of growth ahead of them. Turnover in the S&P 500 is very high as the life of an S&P 500 company gets shorter and shorter. The Dow Jones Industrial Average of 1896 looks nothing like the Dow Jones Industrial Average of today.
