The stock market is down, but you don't need to be

Summary

The Indicator from Planet Money: “The Stock Market is Down, But You Don't Need to Be”

Release Date: March 12, 2025
Host: Waylon Wong and Darren Woods
Produced by NPR

In the March 12, 2025 episode of The Indicator from Planet Money, hosts Waylon Wong and Darren Woods delve into the recent downturn of the stock market, exploring the underlying causes, historical context, and strategies for investors to navigate through tumultuous times without succumbing to panic. Drawing on expert insights from investment researcher and advisor Dan Villalon, the episode offers a comprehensive analysis aimed at demystifying the complexities of the current economic landscape.

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1. Setting the Scene: Current Market Turbulence

The episode opens with Darren Woods outlining the immediate factors contributing to the stock market's decline. He highlights the ongoing tariff uncertainties, government layoffs, and persistent high interest rates that are placing significant pressure on businesses.

Darren Woods [00:11]:
"Tariff uncertainty, government layoffs and sticky interest rates are weighing on businesses. Just yesterday on Truth Social, President Trump announced an extra 25% tariff on Canadian aluminum and steel."

This move by President Trump sparked a heated debate, with Ontario Premier Doug Ford expressing concerns about the detrimental effects of the trade war on both nations.

Dan Villalon [00:35]:
"This is, this is absolute chaos created by one person and that's Donald Trump."

Wong adds to the narrative by pointing out the broader economic implications, noting that the S&P 500 has plummeted approximately 10% from its February peak, fueling fears among Americans that this decline could escalate into a full-blown market crash.

Waylon Wong [00:41]:
"The stock market doesn't reflect the whole of the economy and it doesn't always hit everyone's savings, especially many low income Americans. But spills in the stock market do splash a lot of people."

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2. The Impact on American Families

Darren emphasizes that despite the stock market downturn, it doesn't uniformly affect all aspects of the economy or every individual's savings. However, with three out of every five American families holding shares either directly or through retirement plans, fluctuations in the market inevitably impact a significant portion of the population.

Darren Woods [00:57]:
"Three out of every five American families own shares either directly or indirectly through retirement plans. So what are some ways these families could be navigating this moment?"

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3. Expert Insights: “Don’t Panic”

Inviting investment expert Dan Villalon into the conversation, the hosts pivot to strategies for handling market volatility. Villalon's primary advice is succinct yet profound: "Don't panic."

Dan Villalon [01:25]:
"Don't panic would be sort of the first answer I would have."

Darren concurs, underscoring the necessity of maintaining composure in what he terms "a crisis."

Darren Woods [01:29]:
"It's a crisis. We can't afford to panic."

Waylon Wong further reinforces this sentiment with a cultural reference, likening the situation to the famous line from Toy Story.

Waylon Wong [01:32]:
"This is like that line from Toy Story when Woody says, 'The perfect time to panic.' This is also The Indicator from Planet Money."

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4. Understanding Market Corrections

The discussion transitions to a more detailed examination of market corrections and their frequency. Dan Villalon provides a historical perspective, stating that stock market declines of 10% or more are relatively common events.

Dan Villalon [04:25]:
"If you look at the past 50 years for the US stock market, the US stock market has been among the strongest, if not the strongest, of most major markets. In the past 50 years, 27% of the time the market has been more than 10% off of its previous peak."

Darren contextualizes this statistic, reassuring listeners that a 10% drop is "pretty ordinary," occurring nearly one-third of the time.

Darren Woods [04:47]:
"So when the market is 10% down like it has been this week, that's pretty ordinary. It's the situation almost a third of the time."

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5. The Importance of Timing and Long-Term Investing

Villalon delves into the concept of investment timing, a critical factor often misunderstood by investors. By analyzing data spanning five decades, Villalon demonstrates that the timing of market entry—whether during a peak or a trough—has minimal impact on the long-term growth of investments.

Dan Villalon [05:03]:
"Let's say you have a 10-year investment horizon and the question we asked is, okay, what happens if you started investing during the worst week to be an investor or the worst month or the worst quarter, the worst year. The good news is we found that whether or not you get unlucky with the start doesn't really tell you anything about the next nine years and 11 months and three weeks."

Darren adds a critical caveat to this optimistic outlook, reminding listeners that past performance does not guarantee future results and that market crashes with prolonged recoveries are possible.

Darren Woods [05:42]:
"These analyses are based on the past. The past doesn't guarantee the future. And of course, market crashes with slow recoveries do occur and are painful. And that's why a lot of Dan's advice is about long-term investing, like people saving for retirement far in the future."

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6. Behavioral Economics: Myopic Loss Aversion

One of the episode's focal points is the psychological barrier known as "myopic loss aversion," a term Villalon introduces to explain why investors often react irrationally to short-term market fluctuations.

Dan Villalon [08:09]:
"Ignorance is bliss, myopic loss aversion. And if you haven't heard it before, congratulations. That means you're a normal human. But what the term means is when you look at losses over periods that are sort of too short, the result is that you get an investor overreacting to recent losses."

Waylon humorously responds to the term, clarifying its meaning and emphasizing the importance of a long-term perspective.

Waylon Wong [07:57]:
"I'm actually extremely nearsighted, but I don't think that's what he's referring to."

Darren Woods [08:01]:
"Well, hopefully you can be long-sighted in your investing though."

Waylon Wong [08:04]:
"Yes, yes. I'm not going to check my portfolio. I'll just obsessively check my Instagram likes instead."

Through these interactions, the hosts highlight the common human tendency to focus on immediate losses, which can lead to rash investment decisions. Villalon advises maintaining a distant view of one's investment horizon to mitigate such reactions.

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7. Historical Trends and Market Resilience

Drawing parallels between sports and investing, Villalon uses the example of tennis champion Roger Federer to illustrate how success is often a result of consistent performance over time, despite short-term setbacks.

Dan Villalon [06:45]:
"An analogy that might be helpful is outside of investing altogether, it's tennis. Roger Federer, one of the greatest of all time, won about 82% of all the matches he ever played as a professional. But what about sort of the shorter term? What about the sets or the games or the points? I think this would shock a lot of people. Federer won 54% of all the points."

This analogy serves to reinforce the idea that short-term volatility does not necessarily dictate long-term outcomes.

Dan Villalon [07:11]:
"The short term, as painful as it could be, tends not to really tell you that much about what's going to happen over your entire horizon. And so that's why I feel some comfort in saying don't panic."

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8. Diversification: Spreading the Risk

Toward the episode's conclusion, the conversation shifts to the importance of diversification in investment portfolios. Villalon succinctly encapsulates this strategy:

Dan Villalon [09:20]:
"Diversification is your friend."

Darren expands on this by challenging the notion of American exceptionalism—the belief that the U.S. market is inherently superior—and suggests that diversifying investments globally can mitigate risk.

Darren Woods [08:58]:
"Dan doesn't subscribe to the idea of so-called American exceptionalism. You know, the idea that the way that the US is set up it means that it's just destined to do better economically than the rest of the world. So to learn more about diversification, we have a whole episode on that and we'll link to it in the show."

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9. Final Thoughts and Encouragement

In wrapping up, Wong reiterates the key takeaways, emphasizing that while the stock market experiences frequent downturns, these are part of a broader upward trend over time. He encourages listeners to maintain perspective and adhere to sound investment principles.

Waylon Wong [08:32]:
"Stock markets do go down by 10% or even more fairly frequently. Buying at the peak matters less than you might think for long-run savings. And we shouldn't let this obscure the bigger truth, which is that the stock markets as a whole have trended way up over time."

Darren adds a call to action, inviting listeners to explore further resources on diversification to enhance their investment strategies.

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Conclusion

This episode of The Indicator from Planet Money serves as a timely guide for investors grappling with the anxiety of a declining stock market. By combining expert analysis, historical context, and behavioral insights, Wong and Woods provide a balanced perspective that encourages patience and strategic planning. The recurring message is clear: while market downturns are inevitable, maintaining a long-term view and adhering to diversification principles can help mitigate risks and foster sustained financial growth.

For those seeking to deepen their understanding of investment strategies and economic indicators, the episode suggests exploring additional resources and episodes focused on diversification and other key topics.

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Notable Quotes:

• Dan Villalon [01:25]: "Don't panic would be sort of the first answer I would have."

• Waylon Wong [08:32]: "Stock markets do go down by 10% or even more fairly frequently... the stock markets as a whole have trended way up over time."

• Dan Villalon [09:20]: "Diversification is your friend."

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Production Credits:
Produced by Cooper Katz McKim, engineered by Kwesi Lee, fact-checked by Tyler Jones, and edited by Kkannon. The Indicator is a production of NPR.

Transcript

[NPR]

NPR.

[Darren Woods]

Tariff uncertainty, government layoffs and sticky interest rates are weighing on businesses. Just yesterday on Truth Social, President Trump announced an extra 25% tariff on Canadian aluminum and steel. There was this whole lot of back and forth. Ontario Premier Doug Ford told CN that this whole trade war is bad for both countries.

[Dan Villalon]

This is, this is absolute chaos created by one person and that's Donald Trump.

[Waylon Wong]

Not all of this turmoil has not been good for the stock market. As of this recording, The S&P 500 index of stocks is down about 10% from its peak in February. Many Americans are worried that the stock market fall could snowball into a market crash.

[Darren Woods]

The stock market doesn't reflect the whole of the economy and it doesn't always hit everyone's savings, especially many low income Americans. But spills in the stock market do splash a lot of people. Three out of every five American families own shares either directly or indirectly through retirement plans. So what are some ways these families could be navigating this moment? Dan Villalon is an investment researcher and advisor.

[Dan Villalon]

Don't panic would be sort of the first answer I would have.

[Darren Woods]

It's a crisis. We can't afford to panic.

[Waylon Wong]

This is like that line from Toy Story when wood perfect time to panic. This is also the indicator from Planet Money. I'm Waylon Wong.

[Darren Woods]

And I'm Darren Woods. Today on the show, how to think through a stock market slump. We brush away the cobwebs of fear and confusion and we bring some long held facts to the surface.

[NPR]

This message comes from Intuit TurboTax now taxes is matching with an expert backed by tech to get you the most money [e-mail] Experts only available with TurboTax Live. See guarantee [e-mail] guarantees this message comes from Charles Schwab. When it comes to managing your wealth, Schwab gives you more choices like full service, wealth management and advice when you need it. You can also invest on your own and trade on thinkorswim. Visit schwab.com to learn more. This message comes from NPR's sponsor, Shopify. No idea where to sell? Shopify puts you in control of every sales channel. It is the commerce platform revolutionizing millions of businesses worldwide. Whether you're a garage entrepreneur or IPO ready, Shopify is the only tool you need to start, run and grow your business without the struggle. Once you've reached your audience, Shopify has the Internet's best converting checkout to help you turn them from browsers to buyers. Go to Shopify.com NPR to take your business to the next level.

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[Darren Woods]

As the Trump administration lurches from tariffs on to tariffs off, firings ahoy to firings halted, uncertainty is very high.

[Waylon Wong]

Yeah. And there's actually this indicator based on economic data and words in the news. It shows that excluding the early part of the pandemic economic policy, uncertainty is at the highest level ever recorded since measurement began in the mid-1980s.

[Darren Woods]

Uncertainty is stifling for business investment and it's contributing to the recent fall in the stock market. Now we'll go through a full assessment of the current business climate in other shows, but today we want to pull the lens back and look at the big picture for the stock market.

[Waylon Wong]

Dan Villalon has been analyzing markets for close to two decades, most of that with AQR Capital Management, an investment firm. He loves numbers, and based on the numbers he's looked at, Dan says there are a few reasons why investors shouldn't panic. The first is that while the reasons for each stock market correction might be different, the resulting stock market slip is.

[Dan Villalon]

Common markets lose money, a shocking league, frequent amount of the time. If you look at the past 50 years for the US stock market, and the US stock market has been among the strongest, if not the strongest, of most major markets. If you look at the past 50 years, 27% of the time the market has been more than 10% off of its previous peak.

[Darren Woods]

So when the market is 10% down like it has been this week, that's pretty ordinary. It's the situation almost a third of the time.

[Waylon Wong]

The second comforting fact for investors, Dan says, is about timing. He has run the numbers for the last 50 years of the stock market.

[Dan Villalon]

Let's say you have a 10 year investment horizon and the question we asked is, okay, well, what happens if you started investing during the worst week to be an investor or the worst month or the worst quarter the worst year. The good news is we found that whether or not you get unlucky with the start doesn't really tell you anything about the next nine years and 11 months and three weeks. The short term, as painful as it could be, tends not to really tell you that much about what's going to happen over your entire horizon. And so that's why I feel some comfort in saying don't panic.

[Darren Woods]

A few disclaimers here. These analyses are based on the past. The past doesn't guarantee the future. And of course, market crashes with slow recoveries do occur and are painful. And that's why a lot of Dan's advice is about long term investing, like people saving for retirement far in the future.

[Waylon Wong]

And that long term perspective brings us to reason number three, to take a deep breath.

[Dan Villalon]

If your main job is not looking at this stuff, I would suggest looking at it as infrequently as possible. An analogy that might be helpful is outside of investing altogether, it's tennis. Okay, so Roger Federer, one of the greatest of all times. He won about 82% of all of the matches he ever played as a professional. But what about sort of the shorter term? What about the sets or the games or the points? I think this would shock a lot of people. Federer won 54% of all the points.

[Darren Woods]

He played, but he won more of the games, even more of the sets. And by the time he gets to the matches, he's a world champion.

[Dan Villalon]

And it's just like the stock market, right? If you ask, how often does the stock market go up over the short term? Over a week. But The S&P 500 went up about 55% of weeks going back 50 years. Now the magic is as your horizon gets a little bit longer, the stock.

[Waylon Wong]

Market is gaining only a little over half of all weeks, but it's gaining a higher share of months, even more. When you look at years over horizons.

[Dan Villalon]

That get kind of longer and longer over months, over five years, that likelihood of outperformance increases, same as in tennis.

[Darren Woods]

In fact, there's evidence that people who check their stock portfolios more are likely to get worse performances over time than those who check it, say, once a year. And that's because the vicissitudes of a stormy trading month turns people more conservative with their investing. And they tend to become more likely to invest in things with lower risk but also lower rewards.

[Dan Villalon]

Yeah, and there's a fancy term for that point. It's myopic loss aversion.

[Darren Woods]

Myopic loss aversion.

[Waylon Wong]

I'm actually extremely nearsighted, but I don't think that's what he's referring to.

[Darren Woods]

Well, hopefully you can be long sighted in your investing though.

[Waylon Wong]

Yes, yes. I'm not going to check my portfolio. I'll just obsessively check my Instagram likes instead.

[Dan Villalon]

Ignorance is bliss, iopic loss aversion. And if you haven't heard it before, congratulations. That means you're a normal human. But what the term means is when you look at losses over periods that are sort of too short, the result is that you get an investor overreacting to recent losses.

[Waylon Wong]

Dan says the point here is that in the short term there are all kinds of noisy actions and reactions. Stock markets do go down by 10% or even more fairly frequently. Buying at the peak matters less than you might think for long run savings. And we shouldn't let this obscure the bigger truth, which is that the stock markets as a whole have trended way up over time.

[Darren Woods]

And one more thing, Waylon. We've talked a lot about the US Stock market, but Dan doesn't subscribe to the idea of so called American exceptionalism. You know, the idea that the way that the US is set up it means that it's just destined to do better economically than the rest of the world. So to learn more about diversification, we have a whole episode on that and we'll link to it in the show.

[Dan Villalon]

Notes Diversification is your friend.

[Waylon Wong]

Speaking of friends, if you find our show helpful or insightful, please tell them to listen to the indicator. This episode was produced by Cooper Katz McKim and engineered by Kwesi Lee and was fact checked by Tyler Jones. Kkannon edits the show and the indicator is a production of npr.

[NPR]

This message comes from Warby Parker what makes a great pair of glasses at Warby Parker? It's all the invisible extras without the extra cost, like free adjustments for life. Find your [e-mail] or visit one of their hundreds of stores around the country. Support for the following Message come from LinkedIn ads. With LinkedIn ads, you can reach professionals relevant to your business. Target them by job title, industry company and more by launching your next campaign with a free $100 ad credit at LinkedIn.com results, terms and conditions apply. Support for NPR and the following message come from Rosetta Stone the perfect app to achieve your language learning goals. No matter how busy your schedule gets. It's designed to maximize study time with immersive 10 minute lessons and audio practice for your commute. Plus tailor your learning plan for specific objectives like travel. Get Rosetta Stone's lifetime membership for 50% off and unlimited access to 25 language courses. Learn more at RosettaStone.com NPR.