The stock market is not the economy. But when stocks take as big of a hit as they have recently — plunging into correction and flirting with a bear market in near-record time — Americans are right to be worried, as TS Lombard Chief U.S. Economist Steve Blitz explained in a Sunday note. Here’s why.

U.S. households are more heavily invested in stocks, whether directly or via funds, than at any time in decades. Blitz notes there was a strong correlation between the two in December 2018, when stocks ricocheted nearly 20% lower over a few weeks. “Nominal spending dropped 2.6% (month to month) in December but subsequently rebounded with the equity market,” he wrote.

The biggest tailwind for the economy as the coronavirus sell-off began was the housing sector. Between construction, real estate financial services, and architecture and engineering jobs, housing-related employment was up 1.8% for the month in February, Blitz wrote in an earlier analysis of last month’s jobs report.

“Because confidence closely ties to the equity market, there being no greater statement of confidence than buying that first home, the sharp drop in equities most assuredly will reverse positive trends in housing,” he wrote on Sunday.

Before trading was halted Monday morning, the Dow Jones Industrial Average DJIA, -0.87% was down more than 1,880 points, or 7.2%, at 23,979.90, while the S&P 500 index SPX, -1.11% was off 7% and the Nasdaq Composite Index COMP, -1.07% was off 6.86%, following a selloff wave across global equity markets.

See: Coronavirus update: 111,356 cases, 3,892 deaths, Italian stocks dive

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There’s not a lot the Federal Reserve can do to help now. “The root of this equity downturn is an exogenous hit to earnings from the response to the virus, not in financial conditions that the Fed can readily walk-back by reversing policy,” Blitz noted. That’s a contrast with not only the 2008 financial crisis, but also December 2018, which was resolved with Fed interest-rate cuts throughout 2019.

Indeed, Blitz wrote, “when a non-financial event kicks off a downturn, it is easy for central banks to make a policy mistake because there is no policy to walk back to undo the damage done. Eventually the needed fiscal response arrives, but it will arrive in waves. Tax cuts to raise spending do not arrive unless rising unemployment arrives as well.”

To be sure, for Blitz — and plenty of other analysts —it’s not a leap to see glimmers of a downturn in the economy. Dozens of companies have warned for weeks about the impact of supply chain disruptions. More recently, effects of diminished demand, from cancelled travel plans and gatherings, have become increasingly obvious.

Blitz is counting on 0% growth in the second quarter, but reckons it could be sharply lower. “The point is not the estimated number for Q2 growth but that the economic environment elicits recession-like policy responses from the Fed and federal government – and this is enough to call it a recession,” he said.

Earlier coverage:Here’s the segment of the economy that may benefit from fears of coronavirus