How to Lose $1.1 Trillion in Nine Days

As I started writing this, it seemed clear that the U.S. stock market would be down for its ninth consecutive day. However, by the time I finished the market was nearly flat for the day, and it remains to be seen if the losing streak will be 8-days long, or 9+ days long (the latter not being seen since 1978).

There are numerous articles and commentaries about the reasons for this downturn (see today's WSJ: Economic Fears Hit Global Markets), some key ones being:

•  low numbers in several economic indicators (the ISM Manufacturing Numbers, ADP payroll figures, recent lowering of GDP growth figures)
• seemingly endless worries about the fiscal situation of several European countries
• growing inflation in emerging markets.

Those of us who were expecting a jump in the market as a result of the debt compromise at the beginning of the week have been disappointed; the markets seemed to have expected this to happen all along, and any positive effect was overshadowed by the weak economic data.

data from finance.yahoo.com

In an attempt to get a handle on exactly how much wealth is involved in this market downturn, I put together the above chart with Excel, using data on the Wilshire 5000 Total Market Index, which is a good proxy for  the size (i.e., market cap) of the U.S. stock market.  Bottom line: just over $1 trillion in value lost (much of it on paper only) in just over 1 week.  This is in the U.S. alone -- globally I would guess it is closer to $2 trillion.  Numbers that get kicked around during Washington debt negotiations aside, $1 trillion is a LOT of money -- think $3,000 for each man, woman and child in the U.S.  

Of course, the market could bounce back up just as fast as it fell, which would be nice, though I doubt it.  Meanwhile, such a loss cannot be good for the economy; people with money in the market will tend to spend less as they see their wealth diminished.