How Debt Makes the Market Volatile

The U.S. stock market took a 10-day up-and-down ride after the Federal Reserve announced a quarter-point increase in the target for the federal-funds rate just before Christmas. The Dow Jones Industrial Average lost more than 2,300 points—10% of its value—in the six trading days from Dec. 17-24, before regaining nearly 1,100 points on Dec. 26. Other stock-market indexes traced similar patterns.

Though extreme, the selloff was in step with the going trend. In recent years financial markets have thrown a temper tantrum every…


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