LOCALIZE IT: Ideas for local coverage of stock market slump

Financial Markets (Copyright 2022 The Associated Press. All rights reserved.)

EDITORS/NEWS DIRECTORS:

The stock market’s slump this year has continued to gain momentum, despite volatile swings that have sometimes included rallies that fizzled within hours.

The S&P 500, Wall Street’s main benchmark of health, ended 2021 with a total return of nearly 30%. It then set a record high on Jan. 3 but has fallen about 18% since. A 20% decline from the high would put the index in a bear market — it came uncomfortably close on May 12 before staging a rally.

The Nasdaq composite, which is heavily weighted with technology stocks, is already in a bear market, down about 27% so far this year, while the Dow Jones Industrial Average is off about 13%.

The steep declines mean Americans who invested in the stock market, whether on their own or through a work sponsored retirement account, have likely seen the value of their stock portfolios shrink quite a bit.

There are lots of opportunities to localize this story. But first, some background you can use.

WHAT’S LED TO THE STOCK MARKET SWOON, AND WHY MIGHT IT GET WORSE

Most of this year’s damage on Wall Street has been the result of the Federal Reserve’s aggressive shift away from doing everything it can to prop up financial markets and the economy.

The central bank has already raised its key short-term interest rate from its record low near zero, where it sat for nearly all the pandemic. And the Fed has signaled additional increases of double the usual amount are possible in upcoming months as it attempts to stamp out the high inflation sweeping the economy.

The moves by design will slow the economy by making it more expensive to borrow. The risk is the Fed could cause a recession if it raises rates too high or too quickly. In the meantime, higher rates discourage investors from paying very high prices for investments, because investors can get a better return from owning super-safe Treasury bonds than they could just a few weeks ago.

More recently, big earnings misses by major retailers have stoked investors’ fears that surging inflation could cut deeply into corporate earnings, a key driver of stock prices.

LOCALIZING THE STORY

— A key question to explore: How are local investors coping and reacting to the Wall Street sell-off? It’s likely that the answers to that will depend largely on whether they are older Americans, rather than investors in their 20s and 30s. How are investors near retirement and retirees already making withdrawals from their retirement portfolio holding up? Are they rebalancing their stock portfolio? Are they pulling out now before it gets worse? Or “buying the dip” and picking up big name stocks like Apple that are a lot less expensive than they were earlier this year?

— Younger investors who are mainly trying to grow a nest egg for when they retire are likely not as worried, nor are they perhaps making big changes. However, as many have come of age during a bull market that ran for over a decade (2009-2020), perhaps they’re motivated to cut their losses?

— Have investors come to see market downturns as something they can ride out, given how strongly and quickly the market has bounced back from bear markets in recent years? If so, there could be colorful anecdotes to be found among investors who are not worried at all about the market’s ups and downs.

— Similarly to a strong housing market, when stocks are climbing investors can’t help but feel more financially secure, even if the gains are all on paper. This wealth effect can make people more eager to spend money. The question here is, what’s the impact on local businesses, if any, as the stock market losses pile up. Fewer customers? Canceled orders?

— So-called retail investors helped push up stock prices the last couple of years. A story could focus on where the sell-off has left these novice investors, especially those who bought into cryptocurrencies and meme stocks, which soared in 2021 but are now in a slump with the rest of the market.

— Consider your city’s demographics. Areas with retirement communities, including some “active adult” developments for people 55 and over, could be worth exploring to connect with investors who are retired or just a few years away. How has the stock market slump affected their plans for vacations? Are they having trouble making ends meet?

— It may be worthwhile to reach out to someone who is not an investor and gauge what’s kept them from making a long-term bet on Wall Street’s track record for steady gains over time. Perhaps they can’t afford to invest or don’t trust buying shares in a company. Are they happy to have presumably avoided the kind of hefty losses that many 401k plans have sustained this year?

— That said, don’t be surprised if many people aren’t eager to talk about money, especially if they racked up losses. You may have better luck seaching online investor forums, like those on Reddit, or individual investors on Twitter or Facebook who make a habit of disclosing their stock trades, sometimes even posting screenshots of their holdings right from their stock trading app.

— Connect with a stock market expert who can frame how not participating in the stock market has hurt some households.

— Individual investors aren’t the only ones who stand to make big money or lose their shirt in the stock market. Public employee pension funds, like those many state teachers unions have, can help illustrate the opportunity and potential downsides to investing in stocks. Leading up to the Great Recession, some high-profile state public union pension funds lost billions betting on mortgage-backed securities, for example.

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Localize It is an occasional feature produced by The Associated Press for its customers’ use. Questions can be directed to Ted Anthony at tanthony@ap.org