On Monday, U.S. stocks plummeted more than 634 points, the most significant amount since December 2008.
AOL shares plummeted as much as 21 percent and Bank of America, which is also facing mortgage-related investor lawsuits, plunged more than 20 percent. Experts are saying that the decline was a result of credit rating agency Standard & Poor’s downgrade of the United States’ long term credit rating from AAA to AA+. The demotion was in response to the country’s souring budgets, but Dr. David Bositis, a senior research associate at the Joint Center for Political and Economic Studies says to not fear, the drop in stocks was in response to the rating report and the movement in the market is all panic.
“There was a lot of panic going on yesterday and the past couple of days. The fact of the matter is that the companies...have been making good profits. We are not talking about companies that are doing poorly and not making money, we’re talking about companies that are making record profits,” Bositis tells BET.com.
But how does Wall Street affect Main Street? Just over the past two weeks Americans, who, amid Washington’s political gridlock, have been struggling with job insecurity, lean wages and high gasoline prices, have seen a 15 percent drop in stock prices shrink their 401(k) accounts.
To Main Street the main controversy with the drop is that spending drives about 70% of the economy and when consumers feel less wealthy, they are less likely to buy that new car or new home.
Though the downgrade may not be of large concern, Bositis says that there “has to be some concern about what’s happening in the stock market.”
“How the stock market does and affects people’s portfolios is one dimension of their personal wealth. It has been the case in the past that people spend more when they perceive that their stocks were doing better.” According to Bositis, in order to get the economy going again, especially for Blacks, people need to feel confident about the economy.
Only time will tell with the economy, but just when retailers and consumers alike were optimistic of its recovery, Bositis and experts alike are hoping that the market drop will not become a self-fulfilling prophecy that scares consumers into a recession.
Through all the hype, Bositis still believes that stocks are not a totally unreliable place to invest.
“If you put your money in your bank account now, you might as well put it under your mattress. You’re going to make as much money under your mattress as you make from the bank,” he says.
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(Photo: Tim Winborne/ Landov)