NOEL KING, HOST:
Yesterday was the first day of trading in 2019. U.S. markets started with a plunge but recovered to end the day slightly higher. Then came some big news from Apple. The company said demand for the iPhone is waning. David Wessel is with us now. He directs the Hutchins Center at Brookings, and he's a contributor to The Wall Street Journal.
Good morning, David.
DAVID WESSEL: Good morning.
KING: So I want to start by asking you about this Apple news. Apple CEO Tim Cook sent a letter to investors after the markets closed yesterday. And it said what exactly?
WESSEL: He basically said, we're not selling as many iPhones as we anticipated - or as many as market analysts anticipated. And the reason is because our sales in China, which is their third-biggest market, are way down. It's a sign that the Chinese economy is slowing. And it may also be a symptom of the tension between the U.S. and China. And it's really bad for the stock market because people were surprised by it.
KING: So potentially, the trade war having a negative knock-on effect on U.S. stocks. I know that everyone, David, is hesitant to make predictions about the economy. But as we look forward to 2019, what would or could lead to a market climb?
WESSEL: Right. So the stock market and the bond market as well seem very pessimistic about the near-term outlook for the U.S. economy. And after all, there are some signs of softening. Housing is not in great shape; there's waning consumer confidence. So if the incoming data suggests strength in the economy - perhaps the auto sales data that comes out today, the jobs data we get on Friday - that could really change people's mind or signs that China is not slowing as much as people fear. So that's one. Two is anything that's better than expected news on corporate profits would, of course, be a help - Apple, the opposite. Third, a trade deal would help. A trade deal with China would reduce the potential for some new economic cold war. And finally, I think the markets would feel better if it looked like Washington was functioning better.
KING: All right. So you mentioned two ways in which Washington is affecting this - the apparent dysfunction and the trade war - which makes me wonder whether any of these recent ups and downs have political implications for President Trump in particular.
WESSEL: I do. I really do think that. President Trump looks at the stock market as an electrocardiogram on the economy. That's how The New York Times put it the other day. Yesterday, he referred to the stock market's decline as a glitch. And significantly, he predicted that if he gets a trade deal with China, the stock market would rebound. So I think that the stock market's falling puts pressure on the president to cut a deal with China and to cut a deal with Democrats in Congress because if he thinks that will make the stock market go up, that is one way he measures his success.
KING: Could be interesting going forward. Let me ask you a last question about ordinary investors, people like you and me, not big investors. How are they reacting to this market roller coaster? Are people pulling out of the market, and should they be?
WESSEL: They are pulling out of the market. Thomson Reuters Lipper, which keeps track of these things, said that investors pulled a record $75 billion out of stock market mutual funds in December. Now, of course, the experts always tell us not to panic. And my reaction to that is - well, do you promise to tell us when it is time to panic?
(LAUGHTER)
WESSEL: And I think, basically, people shouldn't have money in the stock market that they're going to need to pay next month's mortgage or next semester's tuition. And if they're in for the long haul - if you're saving for retirement or if you have little kids saving for their tuition, experts usually say it's better to ride this out. Sure, it would have been nice to sell three months ago. But selling now is usually a mistake.
KING: David Wessel, thanks as always.
WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.