Stock Market and the Economy

There is a common misconception about economics. The misconception is that the stock market is a reflection of how the economy is doing. That is in fact not true. 

Credit to Odyssey

When the stock market rises, it is because the quantity of money and spending increases. The same is true for when the stock market falls, only that it is due to decreasing quantity of money and spending. The only connection between economics and the stock market is that money affects both gross domestic product (GDP) and the stock market. Stocks rise when there is inflation in the supply of money. This means there's more money in the economy and the various markets. 

There is no real connection between the economy and the rise and fall of the stock market. The relationship between stocks and the economy is evident by prices falling, but the correlation is not as in depth as the common misconception. 


Written by Colin Bergman

MisesInstitute