ARI SHAPIRO, HOST:
The sentence I'm about to say might sound familiar. It was another rough day for the stock market. Today the major U.S. indexes fell more than 2 percent. At one point, the Dow was down more than 500 points. Oil closed below $30 a barrel for the first time in a dozen years. NPR's John Ydstie joins us to sort things out.
JOHN YDSTIE, BYLINE: Hi Ari.
SHAPIRO: Yesterday everybody breathed a sigh of relief when stocks rose. What caused the big selloff today?
YDSTIE: Three things - China, oil and the Fed. And let's talk about China first.
YDSTIE: There was another big selloff in the Chinese market today. It is now down more than 20 percent from a recent high. Everybody agrees that market was overvalued so U.S. markets should be able to ignore it. But U.S. investors are rightfully concerned about a slowdown in economic growth in China. And that slowdown is behind the big drop in oil prices because a slower Chinese economy means less demand for oil.
SHAPIRO: OK. Let's talk about oil prices. One the one hand, low oil prices are good for the U.S. economy because consumers have more money to spend when gas is cheap. Why is this bad for the markets, though?
YDSTIE: You're right. Lower oil is a net plus for the economy. But remember, the stock market is not the U.S. economy and there are lots of big oil companies embedded in those market indexes. So when the price of oil falls, the value of their shares fall. Just this week, Marathon Oil's stock fell about 25 percent and other companies have lost ground, too. That's weighed very heavily on these market indexes.
SHAPIRO: Let's talk a little bit more about the weakness in the Chinese economy. Why are investors so worried about that?
YDSTIE: Well, for one thing, they're concerned about U.S. exports. And there's no doubt they've been hurt. But exports overall are a small share of the U.S. economy, and only about 7 percent of our exports go to China. On the other hand, China has been a huge engine of growth for the global economy and is a more important market for many other countries, especially commodity producers. So its slowdown is contributing to a weaker global growth. And there's a concern that could spread to the U.S. Now, the U.S. economy has been doing OK and creating a lot of jobs. But there was a weak retail spending report today, and that fueled worries about U.S. growth.
SHAPIRO: John, at the beginning of this conversation, you said it's China, oil and the Federal Reserve. What's going on with the Fed? Why is this a factor?
YDSTIE: Well, the Fed has been pumping money into the economy and holding interest rates low, and a lot of that money ended up in stocks over the past seven years. So the stock market has grown much faster than the economy. That's convinced lots of people that stocks were overvalued. And when you look around, there's been a big selloff not just in energy stocks but in biotech stocks and chipmakers and banks, for instance. Now, now that the Fed is raising interest rates, that cheap money that's been supporting those stocks is going away and investors are reassessing the real value of these companies, and that's pushing stocks lower.
SHAPIRO: Does that suggest that the Fed is unlikely to raise rates again this year?
YDSTIE: Well, there was a lot of speculation about that today. Many analysts had thought another rate hike would come in March, but they're now saying that's much less likely.
SHAPIRO: Briefly - what should ordinary investors do about this?
YDSTIE: Well, if you're saving for retirement, just don't check your 401(k).
SHAPIRO: (Laughter). Just don't look at it.
YDSTIE: It'll make for a much happier weekend.
SHAPIRO: That's NPR's economics correspondent John Ydstie.
YDSTIE: You're welcome. Transcript provided by NPR, Copyright NPR.