What’s behind the stock selloff?

WASHINGTON, DC: Capitalism has always been an epic struggle between risk and reward, and the easiest way to understand the present turmoil in world stock markets is to recognize that the two have reversed. Risk has gone up, and reward has come down. Investors have reacted by selling. Fear triumphs over greed. This, of course, increases risk and selling. It’s an old story.

It may also be misleading. Despite the selloff’s severity (in 2016, US stocks have dropped 7.4 percent and lost $1.8 trillion in value, says Wilshire Associates), many economists doubt it heralds a recession. “Market turmoil [is] not justified by economic reality,” Capital Economics, a consulting firm, told clients. Economists at Nomura, in a January report, rated the chances of a US recession this year at 21 percent. The International Monetary Fund has both the US and global economies avoiding a downturn in 2016.