The stock market is a huge global entity, and one that affects individual businesses and the wider economy in a number of different ways.
In the US alone, for example, there are just under 4,000 publicly-traded stocks that can be divided broadly into 11 global industry classifications, with each of these linked directly to an underlying business and likely to experience daily price movements and fluctuations.
In this post, we’ll explore the relationship between the stock market and retail brands, while asking how both entities are impacted by one another.
The Stock Market and the Economy
In simple terms, the stock market is defined as an entity in which the equity shares of publicly-traded businesses are bought, sold and speculated on.
Overall, the stock market measures the aggregate value of all publicly-traded companies, with benchmark indexes such as the S&P 500 providing a relevant case in point.
An index of this type offers a unique insight into the health of an economy and national marketplaces such as retail, with shares directly reflecting the performance of a brand, its ownership and the speculation that surrounds it on a daily basis.
In this respect, stock market and economic performance are clearly aligned, with a high-performance niche typically indicative of high sales and increased consumer spending across the board.
The Role of Consumer Spending
Perhaps the single most influential factor in this respect is consumer spending, which often drives cyclical stock market trends that benefit both investors and retail brands alike.
To understand this further, it’s clear that consumers tend to spend more during bull markets, typically because they’re generating more income in line with rising GDP and economic growth.
This boosts individual businesses by increasing revenues, while the increase in demand and wider spread of wealth can also boost profit margins. As a result of this, the respective retail brand’s share price is bound to rise amid increased demand and profitability, creating huge opportunities for investors to profit in the short and longer-term.
At this time, investors look to diversify and invest in stocks through their MT4 platform, as part of a continued cycle of stock market, commercial and wider economic growth.
What Happens in Bear Markets?
The reverse is true in bear markets, which sees consumer spending drop as the economic climate worsens. This automatically lowers GDP, while the use of quantitative easing measures (in some instances) may also see the base rate capped and the subsequent currency value (and spending power of this currency) dwindle considerably.
This also sees company turnover fall and share values plummet, while creating fear and risk-aversion in the market that prompts investors to seek out safe haven assets such as gold in search of more secure stores of wealth.
As you can imagine, the stock market remains in a constant state of flux, as macroeconomic factors such as interest rates and consumer spending continue to impact on economic growth and the performance of retail shares.
This is why it’s important that stock traders continually monitor market trends and movements in real-time, while looking to hedge their risk and diversify with bonds and gold during bear market conditions.