I think this has become a recurring theme in this subreddit lately : people questioning why the market isn’t crashing despite the war in Iran, while others (myself included) argue that you can’t time the market and should just stay invested, and that the market always goes up, regardless of the news.
It makes me wonder: how closely is the stock market actually tied to the real economy?
With inflation still relatively high, holding cash or relying on savings accounts leads to losing purchasing power rapidly. People need somewhere to put their money, and that's the stock market.
The market doesn’t go up directly because a war ends or down because one begins. It moves because people buy and sell. So is it really driven by underlying company fundamentals/the state of the economy?
How connected is the stock market to the economy, really?
byu/OrionAndCleo instocks
Posted by OrionAndCleo
9 Comments
When my investments are up I’m more interested in discretionary purchases. That moves money around, and that is an economy.
It always reverts back to fundamentals of the company I would say.
This is a difficult question. I would just say that the economy is held in very few hands these days. What 80% of the population does with their money doesn’t matter much. How 80% of the population is doing financially doesn’t matter that much to our economy.
I wonder same question. Why spy up 8% every year while gdp only up 3%?
There is a direct correlation between stock prices and corporate earnings, there is an indirect correlation between corporate earnings and the economy, so there is an indirect correlation between the stock market and economy.
Until the economy affects earnings and guidance across the board there is very little correlation.
Money velocity is what matters. Other factors, including deficits and geopolitical issues are less important. Are entities spending?
You have to break down what the “stock market” really is. The S&P500 for example is mostly high Quality tech. Once you realize, that big tech mostly relies on corporate and not consumer spending, you can understand how the stock market can still be strong, but the “economy” feels weak for you as a consumer.
When you look at stocks like Nike and stuff, this is propably how you feel the stock market should be, andd there lies the disconnect, because the high market cap companies are still printing money on high margins.
Not at all. It went up during a pandemic when the world was shut down. Now consumer confidence is worse than the Great Recession and we somehow just broke ATHs.