Economic Impact of Stock Market

 

Economic Impact of Stock Market

        The stock market solves the 2 most paramount services. The first is stock market provides capital requirements to businesses to expand their operations. If a company issue 10 million shares at 20$ a share, then that collects the company with 200Mn dollars that can use for future expansion of the business.

 The secondary purpose of the stock market is to enhance the value for shareholders. By holding a stock over a long period of time investors get benefits from dividends and share value appreciation. With the rising share price, investors have more wealth to spend and automatically build optimism about the future prospect of the economy?  The result leads to a boost in the gross domestic product of the country.

 The stock market performs as an excellent economic indicator. It reflects how favorable (current) economic conditions are for listed companies to do their business. Raising the trust of investors helps to put more money into businesses and boost economic growth. In addition to the above stock market allows retail investors to invest in the economy, allowing small investors to participate in the market, they can own a small part of a successful company. Otherwise, only private equities and wealthy investors get benefits from a free economy.

 And in the other hand stocks allows investors to beat inflation. Warren buffet also mentioned that inflation is a hidden tax. In general stock market increased 7% -7.5% after taking inflation into account. Usually, stocks provide much more return than bonds over the history of the US.

Economic cycle and Stock Market Cycle

        The ups and downs of the economy definitely are very important in determining the rise and fall of corporate profits. Rising GDP means more consumption. This creates solid demand for goods, which means greater volumes sold. More work and higher job creation, and thus much more consumption. All those together mean rising revenue for corporations, and in the end, rising profits result in rising share prices.

The future is always uncertain. But try to get a broader picture of the economy. If you do this, it will be much easier. Understand the country's economic growth rate. See whether you are in economic expansion or economic contraction. And watch out for your selected companies' capacity to expand their businesses according to the future needs and wants of the economy.

 Ex: The newspaper industry has lost its demand for the last two decades. Even if those

Companies show solid fundamentals now, they have less room for growth.

 And when you found a gem go through its top management and understand the people who are in the driving seat of that specific company. What you have to do is to go along with it and take advantage of the emotional crowd. From time to time financial market will offer you some bargain prices to enter and expand your investment.