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The Stock Market Essay

3249 words - 13 pages

There is a connection between the stock market and the economy. It is noticeable how economic activity influences stock prices. The current state of the economy has major influence over how much money is being deposited into the economy as well as a consumer's confidence in their income. Whether an individual invests in the stock market or not, it will have an impact on everybody and every company. Every investor’s goal is to gain the most money from the stock market. To do so, much knowledge is needed which can help predict the outcome. There are techniques used by forecasters to predict whether the stock will go up or down. However, it will not be an exact approximation because no one ...view middle of the document...

 A place where the stock market is held is called the stock exchange. The stock exchange serves stock brokers to trade stocks, bonds, or other financial securities. The stock market plays a huge role in the economy.
In the early 1900s, when many people were making tons of money from the stock market, the economy was also doing well. However, during the Great Depression, in 1929, when the stock market crashed, the ones who did not sell their shares in time, faced a great loss in money. Business and the industry was affected as well. Because businesses lost so much money, they could not afford to keep many workers, resulting in a huge number of unemployment. Though the employed had it better than the unemployed, businesses still had to cut back on their hours of wages. The Great Depression illustrates the stock market’s influence over the economy.
Movements in the stock market have an important impact on the economy as well as people. Just as in the Great Depression, a collapse in stock prices has the potential to cause a  widespread economic  disaster. However, a fall in share prices does not necessarily cause the economy to plunge. The stock market also has a positive effect in the stock market. It helps with the distribution of money to growing firms to regulate the economy. In businesses, the stock market can serve as a way for firms to invest, leading to a growth in jobs.
The first impact noticed, of a stock price that is falling, is that stockholders will experience a fall in their wealth which will contribute to a fall in consumer spending.
The stock market can have a major effect on a person’s pension. For example, if there is a large drop in the stock market this would decrease the value of the person’s pension fund.  This means what the person would receive would be low as a person would struggle than to meet their financial demands.
Another big factor that could cause the stock market to plummet is the effects of peoples confidence. Stockholders could become afraid and sell their stocks, causing the worth of the shares to decrease.
A company’s worth is its market capitalization represented by the company’s stock price. The market capitalization is equaled to its stock price, multiplied by the number of shares outstanding. Outstanding shares is a company’s stock which is currently held by all of its shareholders. Consider a company whose stock  is at a price of $5 and is trading 10 million shares. To find the market capitalization of this company, multiply $5 by 10 million. The market capitalization is equaled to $50 million. If the company’s stocks were being sold at $10 and is trading one million shares, instead, its market capital would be equaled to $10 million. When the company has a market capital equaled to $50 million, it is noticeable that its worth is greater than when its market capital is $10 million. Depending on the company’s worth, stock prices vary.
The stock price of a company is calculated when it undergoes...

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