Question

1. Sometimes, when there is news that wages are on the rise, the stock market falls. Why? in 600 words

Answer 1

Answer:

wages are on the rise, the stock market falls:

Yes,

higher wages give people the ability to spend more money but inflation also means higher input costs from both raw materials and wages paid to employees.

Corporations often have a difficult time passing along all of those higher costs to customers, which in turn hurts profits and margins.

Explanation:

When the wages increase the cost of production for the firms increase.

This diverts their funds from investments or production to payment of wages to labor.

Also, the profits for the firms decrease thereby leading to a decrease in the investor confidence in the firms which reflect in the way of falling prices of the stocks of the firms.

This causes the stock market to fall.

The stock market can fall when wage growth is high…or it can fall when wage growth is low.

It’s important to remember that the economic backdrop definitely plays a role in what happens in the stock market, but you can’t discount the risk appetite of investors.

Markets can move in sync with the economy at times, but they can also detach from economic reality when expectations are out of whack.

So the fact that wage growth is rising is something to pay attention to but it’s probably more helpful to use when setting expectations, not timing the market.

Regardless of the market implications, it would be nice to see wages continue to rise.

Financial markets have been outpacing income growth for the majority of the country for a long time now.

Capital has been taking advantage of labor for decades.

Hopefully, as people see higher wages they can be used to save and invest more money when markets fall.