Harvard professor Martin Feldstein said the recently stock market drop is a vicious cycle.
“As markets fall, households lose wealth,” he recently told Fox Business Network. “When they lose wealth they spend less money,” he said.
While the overall economy is still healthy, it’s “very fragile,” he warned. “Over the next two years there’s a better-than-even chance that we’ll see a downturn,” he predicted.
To be sure, Wall Street is making peace with the new normal of higher volatility as stocks careen between agonizing sell-offs and sudden rallies, Bloomberg reported.
After the gut-wrenching $2.5 trillion wipeout in the S&P 500 since early October, traders are resting at relative ease as they prep for market bumps down the road.
A measure of expected changes in the Cboe Volatility Index is sitting near its lowest level since 2016 versus the underlying fear gauge, while demand to hedge tail risks is at multi-year lows.
Markets are “beginning to accept a shift in the volatility regime back to more historically average levels,” said Patrick Hennessy, head trader at IPS Strategic Capital in Denver, Colorado.
Tuesday on Wall Street, the three major indexes turned higher in a volatile session as investors appeared hopeful about China-U.S. trade talks, reversing an earlier slump that coincided with President Donald Trump’s threat to shut down the U.S. government, Reuters explained.
Wall Street had a strong start to the session on news that U.S. and Chinese officials had discussed a road map for the next stage of trade talks, which Trump called “very productive.”
But later in the morning the mood soured as Trump publicly fought with Senate Democratic Leader Chuck Schumer and House Democratic Leader Nancy Pelosi and threatened a government shutdown at a meeting about funding for a border wall, dampening hopes for a deal ahead of a December deadline.
“The key drivers of today’s volatility are the political and geopolitical headlines,” said Carol Schleif, Deputy Chief Investment Officer, Abbot Downing in Minneapolis, citing the U.S. government shutdown fears, U.S.-China talks and uncertainty about Britain’s exit from the European Union.
But Schleif said investors might do well to take advantage of the volatility to pick up bargains against a backdrop of continued growth in earnings and the U.S. economy.
© 2026 Newsmax Finance. All rights reserved.