The consistent showcase of strength by the stock market even when the coronavirus pandemic hit the United States’ economy is evidence enough that it is the biggest market in the world. This is the only market in the world that stays strong even in the face of a weak economy.
For instance, the Dow Jones Industrial Index fell by 30% in March, 2020 when the Covid-19 virus began spreading globally. However, by August the same gained almost 60% of the then current levels far above 28,650. The U.S. economy, though decreased by 31.7% in the same June-August quarter.
How Does A Stock Market Work?
The stock market works by letting buyers and sellers negotiate and trade through a network of exchanges. If you know how to invest in stocks, you would know how the New York Stock Exchange gives out listings with companies and their shares through IPO (initial public offering).
Investors invest in those company shares that they think will do well. Later, investors can trade these shares amongst each other which would further affect the demand and supply value of those stocks. This value helps to determine the trading prices of these stocks.
Buyer bids for stocks at a price that is lower than the price offered by the seller. The difference is called the bid-spread. For a successful trade to take place, either the buyer has to increase the bid price or the seller needs to reduce the offered sell price.
Why is the Stock Market The Biggest Market In The World?
Recently a Wharton finance professor Italy Goldstein spoke about the three factors behind the obvious disconnect between the economy and the stock market, which also identifies the reasons behind the success of growth stocks.
The three factors are as follows,
1)A Forward-looking Market:
The key to understanding this problem is understanding what the economy consists of. What you see in news about the economy is just what is going on in terms of production and employment. Even under normal circumstances the economy never runs in a parallel line with stock prices.
In fact there might be such situations where the price of stocks will end up anticipating something that is going to be different from what you are seeing right now.
2)More Investment Always Helps
Secondly, more investment on the part of Federal Reserves across the world has kept the price of stocks up. Of course, this has helped in keeping the market intact even during the pandemic. The fact that the Federal Reserves started investing more in the market has simply pushed prices to go up.
Whatever the Federal Reserves are doing right now is a little unexpected. Since the middle of 2019, the Federal Reserves have maintained low interest rates. However, that did not stop them from relying on their past approach of incorporating liquidity into the market during the financial crisis of 2008-2009.
Naturally the stock prices got pushed up by the Federal Reserves’ act of purchasing them. That in turn led to the rise in prices of other assets because investors will always look for a place to invest and multiply their money.
3)The Stock Market Does Not Represent The Entire Economy
Thirdly, as mentioned before the stock market definitely does not represent how the entire economy looks at any given point. In fact the stocks of Google, Facebook, Netflix, Microsoft, Apple, and the like have been doing very well and have not been hurt by the economy at all.
These stocks have been dominant in the market for quite some time, through the global pandemic of 2019. However, they necessarily do not represent the condition of the economy making this market one of those big, lucrative markets in the world.
Another interesting factor that appears here is how small businesses have no connection to this lucrative market. This is understandable from the fact that even though the economy has managed to affect small businesses in terms of output, production and the like, there is no sign of such businesses in stock markets.
Answering a few frequently asked questions about stock markets will help you make logical descriptions.
- What is a Lithium Stock?
Lithium Stocks are stocks or shares of companies that deal with the mining or processing of lithium. 2020 and 2021 has seen a sharp rise in profits from trading in lithium stocks. So, these stocks are in demand.
Traditionally, stock markets are always open from 9:30 AM ET to 4:00PM ET during normal business days, that is Mondays to Fridays. This means the market is definitely not open on weekends. If you decide to invest in stocks on a weekend, the processing involved will be queued for the next trading day.
- What are Blue Gas Stocks?
Blue Energy Limited is an Australian oil and gas exploration company where you can invest in a blue gas stock. Simply put, blue gasses are hydrocarbon fuels like diesel and gasoline. However, these are manufactured from hydrogen instead of being refined from petroleum.
Stocks are ideal for long-term investments like a good retirement plan but not so much as a short-term investment plan. This is because a short-term investment always leaves you with a greater chance that you will want the money back before the market has the time to recover losses.
Investments are always a risk. The stock market however carries a lot more risk and a lot more potential for you to actually make a lot of money. It is the biggest market in the world and a diverse stock portfolio accompanied with a great market research can make your income expand considerably.