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What is the impact of stock market performance on businesses?

Markets, consumption patterns, trends, stakeholder engagement and the multidimensional environment in which companies operate have a significant impact on the overall economy. In fact, the performance of the stock market has a direct impact on both the economy and businesses. Based on this assumption, we will look further at how stock market performance affects businesses – something which happens on several levels.

Consumer Spending

During bull markets, consumers tend to spend more. A strong economy with rising trends creates greater optimism for investors. The value of the portfolios tends to increase. Overall, the sense of well-being increases.

On the contrary, during bear markets, there is a feeling and acceptance that the market isn’t doing so well, and therefore consumer spending is decreasing. The imminent decline in the value of the shares may create a framework of fear of losses. There is a feeling of uncertainty as to the market prices and consumer spending is in greater inertia.

A growing stock market is generally in line with a growing economy and provides greater confidence to consumers and investors.

More broadly, when investors are driven by a sense of confidence in the markets, this results in more buying activity. A rise in prices can also be seen. This growing wealth often leads to higher spending by consumers, who buy more when they feel more financially secure.

Furthermore, when consumers buy more, the businesses that sell these goods and services produce more to earn more.

Overall wealth erodes as stock markets suffer significant losses. It is very likely that consumer spending will decrease while the portfolios are losing value. As a result, many businesses are seeing a decrease in their sales and a decrease in the value of their shares.

Economy

  • It is the market on which equity shares of publicly traded companies are bought and sold. The total value of all publicly traded companies can be measured on the stock market.
  • Indices, such as S&P 500, can be invaluable tools for measuring the overall health of the economy.
  • Typically, market and economic performance are harmonized. As the stock market grows, the overall economy grows.
  • Observing gross domestic product (GDP) is one means of monitoring economic growth.
  • As GDP grows, businesses produce more and typically expand and can generate larger profits on the stock market.

Companies are strongly affected by stock market movements. The rise and fall in the value of shares affect a company’s market capitalization and, as a result, its market value. The market value of a company is higher when the stock price goes up. 

In addition, the market value of a company can be important for several reasons, such as issuing shares to raise more capital or even the possibility of merging with another company.

Companies also assess their debt and equity to come up with a weighted average cost of capital, which can then be used in various analysis scenarios.

Finally, positive increases in the value of shares can also potentially lead to new interests for a particular company or sector. This can potentially boost turnover growth or attract investors.

Feeling a little bit wiser? How will you strive for a brighter future?

 

 

 

 

Disclaimer: This material is considered a marketing communication and does not contain, and should not be construed as containing investing advice or a recommendation, or an offer of or solicitation for any transactions in financial instruments or a guarantee or a prediction of future performance. Past performance is not a guarantee of or prediction of future performance.

 

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