When does a market dive hit the rest of the economy?

A falling stock price can also be a signal to a company's leaders that it is time for it to tighten its belt

- Justin Lahart & Gunjan Banerji

Stocks are flashing red. Even for people who don't have much money—or any money—in the market, that is something to worry about.

Stock declines can be a signal of future trouble in the economy, though not always a reliable one. Sometimes the market swoons and a recession ensues, as after the 2000 dot-com crash. Sometimes stocks can enter a bear market, as they did during the Russian debt crisis in 1998, and the economy soldiers on. The economist Paul Samuelson in 1966 joked that the major market indexes had predicted nine of the last five recessions.

Even before last week's tariff announcement, Americans were already in the dumps about the economy. Though the labor market has so far continued to generate jobs, surveys of consumers and businesses show concerns over Trump's trade policy, government firings and spending cuts.

But falling stocks aren't just a signal that the economy could be in trouble. They can also add to the economy's woes.

For one, millions of Americans' finances are tied to the markets.

As of 2022, 58% of American families held stocks, either directly or in indirect holdings, such as retirement accounts, according to the Federal Reserve. For those in the bottom 50% by income who held stocks, the median amount of stock-market wealth came to $12,600. For those in the top 10%, that figure swelled to $608,000.