Stock Block

After beginning to write about the economy in this blog, I suddenly realized that I had a lot more questions about the economy than I realized. I have also wondered what the stock market is exactly and what direct effect it has on the economy. The economy and the stock market are directly related. 

 

Generally speaking, the stock market will reflect the economic conditions of an economy. If an economy is growing, then output will be increasing and most firms should be experiencing increased profitability. This higher profit makes the company shares more attractive and they can give bigger dividends to shareholders. If the economy is expected to go into a recession, then stock markets will fall. This is because a recession means lower profits, less dividends and even the prospect of firms going bankrupt, which would be disastrous for shareholders. However, in a recession, the stock markets can sometimes increase. Often this is because stock markets are forward looking. The market has probably already priced in the effect of the recession and now the stock market is anticipating a recovery. For example, the stock markets in 2007 and 2008 performed badly in anticipation of a US recession.

 

In order to gather this information, I basically researched the stock market and the different aspects of the economy. After reading numerous articles I finally began to understand how it all works. Now, I'm extremely glad that I took the time to focus on learning the details because now I am more aware of what it all takes and why things happen the way they do.