But this means when the tide starts to turn, there’s often a big shift in markets, with people hopping onto (or off) the bandwagon and copying what their peers are doing. As share prices start to fall, often the panic feeds on itself, and manifests in a big stock-selling frenzy, regardless of what started it.

It’s hard to pinpoint exactly what markets were thinking, and what factors fed into their reaction earlier this week. But the clear feeling sweeping through it was nervousness. When investors are nervous, they tend to sell shares, and move into “safer” investments such as bonds.

Does all this mean the Australian economy is in for an apocalypse? No, far from it.

When it comes to the fallout of the sharemarket plunge, there will probably be a slight impact on people’s wealth, at least over the short term, in what’s called the “wealth effect”. This is essentially the theory that people will tend to spend less when the value of their assets – such as their investments in the sharemarket – fall, and vice versa. The richer we feel, the more we’re likely to splurge.

But most Australian households don’t think too deeply about day-to-day movements in the sharemarket. A lot of our wealth, particularly when it comes to shares, are held in our superannuation funds, which most of us check on about as often as we change our tyres – only when we need to. And while the plummet this week may have caught our attention, we’re likely to have largely forgotten about it a few months down the line.

While the Australian economy is closely connected to other countries, especially those in Asia, the choppy forces moving the Australian sharemarket often tend to be global.

HSBC Australia chief economist Paul Bloxham points out it wasn’t just one number driving the movement.

On top of the weaker-than-expected jobs data from the US, there was also weaker manufacturing sentiment and Japan’s decision to hike interest rates, he says. Investors have been making the most of near-zero interest rates in Japan by borrowing money to invest in other countries such as the US: a strategy known as a “carry trade”. But the deadly combination of rising interest rates in Japan and signs of a slowing economy in the US suddenly made this trade unattractive, leading to a rapid pullback from these types of investments.

“When markets have a lot of participants all holding the same view, and it turns out that view isn’t right, when all of those people try to get out of that trade all at once, it can often be quite difficult, and you get more volatility,” he says.

While the Australian economy is closely connected to other countries, especially those in Asia, the choppy forces moving the Australian sharemarket often tend to be global.

By contrast, Bloxham says the biggest issue for the Australian economy remains inflation, which has become an increasing domestic issue.

“What matters more right now is that local inflation is still higher than it should be,” he says. “That matters more in terms of thinking about interest rates, and what it means for the local economy more generally, and that’s why the RBA is more focused on that than they are on the share market turmoil we’ve seen.”

To be clear, financial market movements can influence economic policy decisions from the RBA and the government, especially if they suggest there are problems around financial stability. During the global financial crisis, for example, the sharemarket crash reflected big losses in wealth and large numbers of people becoming financially distressed, which had a significant impact on the economic outlook. And a sluggish US economy would undoubtedly drag down overall global growth.

But sharemarket scares are frequent. And while the financial market, with all its fancy instruments can, on rare occasions, reflect the health of the economy, more often than not, it’s much ado about nothing. Don’t read too much into it.