The stock market is considered to be a key economic pillar. It has a major impact on the development of business and industry, which essentially has a huge impact on the overall health of a nation’s economy. As per Kavan Choksi Wealth Advisor, it is among the key reasons why central banks of a country, its government advisors and business organizations tend to monitor the actions of the stock market closely. Usually the stock market and economy move in lockstep with one another. However, due to market volatility, it is possible for stock prices to fall in good economic times and rise in bad ones.
Kavan Choksi Wealth Advisor briefly talks about how the stock market impacts the U.S Economy
Many pundits believe that the fluctuations of the major indexes that track the performance of the biggest companies in the country do not have much of an impact on the average American as the majority of shares are owned by the super-wealthy. However, even though it is true that the wealthiest American citizens are the ones to own most of the stocks, it is not right to assume that others are not impacted by their value. After all, an increasing number of American households are choosing to invest their savings in equities to secure their financial futures. Moreover, the stock market comprises of companies that produce varying goods and services, provide jobs to the population, and essentially power the economy.
Many people in the United States today invest a part of their earnings into the stock market to secure enough money to live on in the retirement years. Retirement plans largely invest in company shares, as they have a decent chance to beat inflation and grow in value. Through these plans, a large percentage of Americans today have exposure to the stock market. If stock market valuations go up for a prolonged period of time, these Americans are likely to have an adequate amount of money to live on when their time in the workforce comes to an end. On the other hand, a lengthy bear market may result in smaller retirement funds, larger welfare checks, as well as less money going around the economy.
At times, public companies tend to issue new shares for the purpose of raising extra funds. With a rights offering, shareholders tend to be invited to buy additional slices of ownership in the company, typically at a slight discount to the current price at which the shares are trading. In the opinion of Kavan Choksi Wealth Advisor, it is a relatively low-cost way to generate money but is generally less favorable when share prices are depressed. Ideally, the higher the shares are valued by the market, the more companies stand to make from a rights offering. The additional capital can have a significant impact on many, as business investment triggers improved economic output and create more jobs.
Publicly traded companies face the challenge of satisfying their shareholders to maintain or enhance their stock value. However, the desires of shareholders may not always align with the company’s long-term interests. The stock market often promotes a short-term focus, with some investors seeking immediate returns in the form of higher dividends and profits. This pressure can limit funds available for the company to invest in improving and expanding its operations. In response, management may resort to hasty measures like reducing costs, such as layoffs or cutting production expenses, which may negatively impact consumers and compromise the company’s long-term stability.
