How Current Events Control the Stock Market
The stock market is impacted by many different things. How a stock performs isn't just a result of one action, but many actions that work together. Our world is a complex place—we rely on our friends all over the globe to keep things running smoothly. Whether it's something happening here at home or somewhere in a far-off place, current events and international news can be huge players in the way the market moves. From shareholders, to CEOs, to consumers, every move has a consequence, and the things that happen around us are a huge influence on the way we as humans behave—which in turn, affects the stock market.
Industry Professionals and their Impact
Those who hold power in a company itself are major voices in the markets. It takes a steady hand to be a leader in finance, as these people make decisions that can make or break a company. The people who make the final decisions can affect a stock's volatility, so their actions must always be carefully considered. When it comes to what's going on in the world, the way they react to the news plays a huge role in the way their stock will perform, how shareholders will want to respond, and in turn, what investors will choose to do with their shares. So, when choosing where to put your money, it may be a good idea to consider who is involved in the company and how their actions have impacted the markets in the past before making any concrete decisions. When circumstances that impact the entire world occur, your portfolio will be grateful of your past considerations.
The Importance of Shareholders
A shareholder is a person who owns a percentage of a company via stocks. This can be as little as one share, or as many as thousands. They can have certain privileges within the company, including voting rights and dividends. The shareholders are crucial to the operations of a business, as they hold power than can dictate the trajectory of company actions.
While being a shareholder has its benefits, there are many responsibilities they need to have; when it comes to what goes on in the world around us, the shareholders must be paying attention. The current atmosphere at any given time can influence them one way or another and impact a potential proposal they may have for the board. While they aren't obligated to entertain the shareholders' wants, it's necessary to do right by them as they are a crucial component to a company's success. When a company is successful, investors can see the result of this in their profits. With thousands of publicly traded companies out there, there's a lot to pay attention to that may affect not only profits and the direction the market will go, but the overall economy.
What Does it Mean when the Stock Market Crashes?
When stock prices rapidly decline across the board in a very short period of time, this is referred to as a stock market crash. This has occurred multiple times throughout history, most recently at the start of the COVID-19 pandemic. When this happens, it can denote a bear market or financial crisis and can cause investors to panic.
Looking back to the crash of 2008, which was a consequence of the housing market collapse, the US had record high unemployment rates and Americans lost trillions in net worth. It took years for the markets to fully recover from this, long after the Great Recession officially ended. A stock market crash can mean that the economy is headed for a less than desirable period, which can affect everyone, even those who aren't investors.
The Role of World Events
As seen when COVID-19 first hit the US in early 2020, events that impact global infrastructure can cause stocks to drop significantly. Unlike the economic crisis in 2008, the pandemic was unprecedented and unavoidable. It caused businesses to close, widespread panic, and in times of uncertainty, resulted in market volatility levels surpassing the 2008 crisis. When the markets reacted to the initial onset of the pandemic, it reflected this uncertainty. But, when you compare the way volatility between the current pandemic and disease outbreaks in the past, the outcome was far less dramatic. This is due in part to the level of global interconnectivity we experience today, and, fueled by fear, stocks were sold in droves. While the markets have recovered over the past two years, it was a huge indicator that such events can do significant damage to the economy in modern times.
More recently, the war in Ukraine drove the stock market into bearish territory once again. Inflation hit a record high, and prices soared at the gas station and supermarket, severely disrupting many families' ability to make necessary purchases. With so many sectors stock prices dropping, it was a signal that the economy was suffering as a result. Even though the ongoing war may seem far removed, the impacts and consequences can be felt through inflation, supply chain issues, and declining stock prices.
The Bottom Line
Whether you're an investor, a shareholder, a CEO, or just a concerned civilian, it's crucial to know how different factors all work together to make the stock market what it is. How stock prices perform can be an indicator of what's to come or serve as evidence of how the world is doing collectively. The country functions with the help of others, and current events—whether one happening here, on the other side of the globe, or even both simultaneously—play a huge role in the how our economy is able to run. From the most important name at a company to the consumers buying their goods and services, the stock market can only do as well as the people, and the events, contributing to it.
Disclosure: All investments involve risk, and not all risks are suitable for every investor. The value of securities may fluctuate and as a result, clients may lose more than their original investment. The past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss in a down market. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing.
Defining Inflation: When prices rise across the board in the economy, this is referred to as inflation.
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