Question

Explain how the strength or weakness of the stock markets, as defined by market averages, impact businesses and therefore individuals in our society.

Answer 1

Stock market does have many strengths and many weaknesses also. IF we look from the perspective when the markets are fair and efficient then on average market can benefit the businesses and society as a whole in many ways. Business use the market platform to raise funds and by raising funds through large set of investors the cost of funds is usually reduced for the business. The capital allocation in an efficient business is optimal. Markets create a lot of opportunity for the society as a whole by creating a way to sustainably create wealth over a period of time. People do invest their savings for retirement and markets can create a lot of employment opportunities for the young generations. It can also help to act as a bridge between the businesses who need funds for investment and people in society who saves funds for their future needs and they can interact with each other in an efficient way. The weaknesses of the stock market come when people are manipulating the stock market and some people have insider information and are using it to benefit at the expense of the other small investors. When people spread misinformation or manipulate the platform then business loose the trust of investors and then cost of capital goes up. When some investors are benefitting in a wrong way then this also helps in widening the gap between people with different income class.