and whoever wants to be first must be slave of all. For even the Son of Man did not come to be served, but to serve, and to give his life as a ransom for many.”

10 Jan 2018


Hi Friends,   Economic effects of the Stock Market:   

Wealth effect:   The first impact is that people with shares will see a fall in their wealth.  If the fall is significant it will affect their financial outlook.  If they are losing money on shares they will be more hesitant to spend money; this can contribute to a fall in consumer spending.  However, the effect should not be given too much importance.  Often people who buy shares are prepared to lose money; their spending patterns are usually independent of share prices, especially for short term losses.  The wealth effect is more prominent in the housing market.

Effect on Pensions:    Anybody with a private pension or investment trust will be affected by the stock market, at least indirectly.  Pension funds invest a significant part of their funds on the stock market.   Therefore, if there is a serious fall in share prices, it reduces the value of pension funds.  This means that future pension payouts will be lower.  If share prices fall too much, pension funds can struggle to meet their promises.  The important thing is the long term movements in the share prices.  If share prices fall for a long time then it will definitely affect pension funds and future payouts.

Confidence:   Often share price movements are reflections of what is happening in the economy.  E.g.  A fear of a recession and global slowdown could cause share prices to fall.  The stock market itself can affect consumer confidence.  Bad headlines of falling share prices are another factor which discourages people from spending.  On its own it may not have much effect, but combined with falling house prices, share prices can be a discouraging factor.  However, there are times when the stock market can appear out of step with the rest of the economy.  In the depth of a recession, share prices may rise as investors look forward to a recovery two years in the future.

Investment:   Falling share prices can hamper firm’s ability to raise finance on the stock market.  Firms who are expanding and wish to borrow often do so by issuing more shares – it provides a low cost way of borrowing more money.  However, with falling share prices it becomes much more difficult.

Bond Market:   A fall in the stock market makes other investments more attractive.  People may   move out of shares and into government bonds or gold.  These investments offer a better return in times of uncertainty.  Though sometimes the stock market could be falling over concerns in government bond markets.  (e.g. Euro Fiscal Crisis).

Good Luck.                                                                See You later.

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