AUSTIN (KXAN) — The stock market started Monday in the red, kicking off a third consecutive open of major losses. The downturn has grabbed the attention of not only professional investors, but also retirees and workers worried about their 401K. It's also been a topic of discussion for Unive rsity of Texas Professor Henry T.C. Hu, the Allan Shivers Chair in the Law of Banking and Finance. In addition to his focus on law, he also teaches about finance and securities. Before coming to UT, Hu was the founding director of the Securities and Exchange Commission's Division of Economic and Risk Analysis. Between teaching classes on campus, Hu talked with KXAN's Tom Miller about what's driving the downturn and what it means for average investors watching their retirement accounts take a hit. This interview has been edited for clarity and brevity. NEW YORK, NEW YORK - APRIL 04: Traders work on the floor of the New York Stock Exchange (NYSE) on April 04, 2025 in New York City. (Photo by Spencer Platt/Getty Images) Tom: What are the main factors currently causing this market volatility? Professor Hu: Three different things. One is the tariff changes announced last week. The second one is the general overvaluation of the stock market, especially in terms of the so-called Magnificent Seven stocks (Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla). The third is the sheer momentum that once a precipitous decline occurs, the momentum may push it down further. Tom: With tariffs specifically, how do tariffs impact everyday investors who are just trying to save for retirement? Hu: The main issue in terms of the real economy is now, there's a risk of so-called stagflation, that is a combination of inflation and economic stagnation, and when you have this kind of stagflation, it really hurts everybody in the pocketbook. Tom: If you are invested in the stock market and you're seeing what's happening, should you change what your portfolio looks like? Or should you wait it out? Hu: I do think it's an incorrect approach that some investors have of simply buying an S&P Index Fund and forgetting about it. I think that's not the path to a good retirement. I think diversification in a broad sense, to really think through, 'hey, what do I mean by being diversified in terms of stocks, diversified in terms of bonds, diversified in terms of alternatives or cash?' (That) makes a whole lot of sense. A trader works on the floor of the New York Stock Exchange in New York City, on April 7, 2025. (Photo by TIMOTHY A. CLARY / AFP) (Photo by TIMOTHY A. CLARY/AFP via Getty Images) Tom: Looking towards the future of the stock market, is this something that can bounce back quickly? Or do you feel we'll be here for a while? Hu: I think this fall will last quite some time. You can never predict short-term movements, day-to-day movements, or even yearly movements. A lot of people are not aware that just three or four months ago, at the year-end 2024, all the professionals were calling for a rising stock market this year. They're not there today. So, I would not count on the guessing of short-term trends for the usual retail investor. Tom: Can you give us some historical perspective on where things stand with the stock market? Traders work on the floor of the New York Stock Exchange in New York City, on April 7, 2025. (Photo by TIMOTHY A. CLARY / AFP) (Photo by TIMOTHY A. CLARY/AFP via Getty Images) Hu: The U.S. stock market has been especially overvalued by price-earnings terms relative to, for instance, European markets. It's off the scale, off the charts. The two days, last Thursday and Friday, the 10% drop in the S&P 500 - Deutsche Bank did an analysis. It found in the past 85 years, there's been only four instances that have dropped that much percentage-wise, in two days. So that tells you that we are at a seminal moment. We really ought to sit down and think through our kind of long-term investment strategy. ...read more read less