What is stock market?
A stock market, equity market or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock market. Wikipedia.
In, other words the stock market helps investors to invest their capital in equities of companies they think will perform well. This investor may include any common person, a banker, a business man(or woman),or an international investment company, etc. There by helping the company in its endeavours.
Whats the relation of Stock market with the Economy?
In an ideal world the stock market should be a clear representation of the economy. That is, when the general economy goes south the stock market should also go south and vice-verse.
But does it?
Not always, since we don’t live in an ideal world (sadly). The numbers of a stock market are not that reliable. The general economy of a country may be suffering a down turn ( i.e lack of business for majority of the population ) but the stock market may be at all time high. If you this resonating with India’s economy in December 19 (time of writing) then you won’t be wrong.
So when do their stars align?
Lets consider this,
A man takes his dog for a walk in a park. The dog is on a leash. The man walks straight, dog goes left and right but it still walks with the man.
One can say the man is like the economy and the dog is like the stock market. Howsoever the stock market fluctuates, in the end it has to walk along with the economy.
Why did the stock market go up in the first place, even at economy’s lows?
When the general business is low, people start to look elsewhere for quick and easy returns. Stock market is always a very attractive bet for such individuals and when this happens, all the money gets pulled out of the real markets and gets poured into stock market making the economy go down and stock prices to go up.
Hence, even if the stock market is at high and economy is at low, the stock market will return to low as well (eventually).
Honestly I can’t think of anything more for this blog. I hope you liked the read, in case you didn’t I am sorry but there is no dislike button, you can always use comments though.
By Bhavik Gandhi December 18, 2019
Easy Economics 