How much of an indicator of the state of the economy is the stock market?
It’s generally a leading indicator because traders react immediately to news that won’t influence corporate profits for months. However, it’s also more volatile than the economy because much of the news does not have as much influence as the traders anticipate.
I agree. The stock market peaked one year ago when still the economy was supposed to be growing. A speculation of my own is that the DJIA will bottom (in the 7000s, 5000s, 4000s), nobody knows at which value and when, and will probably recover at a speed that no one should even try to guess, but during that recovery process the official statistics will still be showing a recession for a couple of quarters or more.
I am providing approximate figures for illustrative purposes, I am just trying to think what the future trend could be. I do not feel any desire to sell or buy anythingh in the stock market at this time.
It seems to be a highly flawed indicator of the actual state of the economy, just down to its basest elements. It predicts what will happen in the future and creates a market for people to make money off of expected future profits. This means that if the economy is doing great right now and a company doesnt make the profits they expected to make their stock will fall. This does not directly relate to a poor economy or anything poor other than the performance of that particular company.
Yes but generally if all the stocks fall…all the companies are essentially not doing very well and in that way it is a indicatator for the economy. Their are ups and downs in the stock marktet everyday…some go up and some go down…but if more go up then down to a greater extent it helps give an idea of how the economy is doing…also it is true in some cases people will sell if a company dosent make its predicted profits but…if its predicted profits are 19% and it only makes a 10% thats still impressive and people proaabably wouldnt sell…however if a company predicts 4% and they only get 1% they may switch there funds to a more profitable investment. It depends on the extent/degree of the shortfall.
I think that if you have an idea of the emotional status of Wall Street’s casino players, you can estimate what could happen to the real economy. [:S]
It seems that paranoia, fear, media influence and government propaganda influence the stockmarket to a certain degree. I read somewhere this weekend that the stock value of one company was less than the assets of that company were worth.
I am also wondering how much investors in the stockmarket really understand about the economy versus seeking to satisfy their gambling habits and trying to make quick money.
Some investors understand a lot about the economy. Most investors do not understand much about the economy. You are absolutely right on your assertion that they seek to satisfy their gambling habits and try to make quick money. Usually what happens in that rush is that you quickly lose money. It is likely that there should be an eventual recovery, but the way up might be a lot slower than the speed the way down was.