Businesses of all industries in the economy are impacted by the movement in stock market for a number of ways. In the US, there are around 5000 publicly traded stocks that could be divided into 11 global industry classifications or GICS. With the day to day movements in the market, each action could lead to a different result, which may either be a positive or negative effect on the business.
The Economy and Stock Market
The stock market is described as the market to which equity shares of public businesses are being sold and bought. It is the stock market that is used in measuring the aggregated value of the publicly-traded firms. Comprehensively, this could be represented by Wilshire 5000. But to be in generally, many investors as well as analysts are focused more on S&P 500. Both of the said indexes play an integral tool to gauge the health of overall economy. Sometimes though, stocks might be misleading.
Most of the time, the economic performance and stock market are aligned. Having said that, whenever the stock market performs well, it’s normally brought by the growing economy. Then again, economic growth is measured in various methods but among the predominant methods is through GDP or Gross Domestic Product.
Whenever the GDP grows, individual businesses produce more and oftentimes, expanding. With expanding business activity, it typically boosts leads and valuations to the gains of stock market.
How Consumer Spending and Stock Market is Connected?
In most cases, consumers are spending more time throughout bull markets because they’re benefiting more from strong economy. At the same time, they feel richer every time their portfolio increases in value. During bear markets though, the economy is spending recedes and thus, not in a good position. Simultaneous fall in the stock value can create the fear for loss of purchasing power and wealth.
Rising stock market on the other hand is aligned with growing economy as mentioned. This is also an indication of increased confidence among investors. With investor confidence in stocks, it results to heightened buying activity that helps in pushing the prices higher. As the stocks are rising, those who have invested in equity market is likely to gain wealth.
With the increase in wealth, it leads to the increase of consumer spending since consumers tend to buy avail more services and buy more goods. And when such thing happens, businesses that are selling these goods and services opt to sell more and produce more. Thus, reaping all the benefits in form of increased ROI.
Now, you have two options in this matter, it is to borrow against settlement and invest in your own business or learn and understand how the stock market works and invest on it.