When she heard that I’m an economist, she wanted to know if the economy would stop declining. “We’re actually growing,” I said, “though not at a particularly fast pace.” She looked surprised and noted that the Dow was down a good bit. “Oh, the stock market is not the economy,” I said as I headed to the bar. The stock market can actually fall in a healthy economy.

Let’s start on the planet Vulcan, where people like Mr. Spock invest without emotions. They look at future corporate earnings to decide whether to buy or sell stocks. They know that earnings are tied to the economy, so they track forecasts of GDP carefully.

Let’s say that the Vulcans had an economic forecast like the blue line in the chart. Then they saw reason to expect slower growth, like the red line. The red line is still rising. The economy the red line portrays is growing, though not as fast as the old forecast suggested.

What will the stock market do when expectations change from Old Forecast to New Forecast? Stock prices must fall. The future isn’t as rosy as we thought. Profits won’t be as high. The value of a share of stock is based on expected future earnings, which are lower. The stock market falls even though the economy is still growing.

This is relevant today. The IMF has lowered its forecast for global economic growth, and the economists surveyed by The Wall Street Journal have lowered their forecasts for future growth. They are forecasting growth, but a little less than they had forecast a few months ago.

The emotion-less assumption is just a first pass, of course. We are human, not Vulcan. Our emotions influence our decisions. The stock market can fall more than is explained by shifting economic forecasts, if a small change in the forecast leads to fear and panic.

If you run a Main Street business, it’s vital that you not get distracted by the stock market. If you are retired and focused on your investments, don’t expect your stocks to always do well just because the economy is expanding.