How Are Business Operations Affected By Stock Market Fluctuations?

Several ordinary people wake up every day to read the newspapers or online news, specifically to check if their favorite company is doing well or not. This is not because they are loyal customers to the company’s products but because their loyalty has been built and developed due to the shares bought by them in the respective companies. As long as the share value is high and increasing, customers are happy and the reverse happens when the share price goes down.

Here is a look at how these businesses are affected even by the slightest change in the stock market.

  1. It influences the spending behavior of consumers when the stock market is doing well. When the share value of the stocks is increasing, consumers get a feeling that they are rich and as a result, they tend to spend more, even in goods that are not of use to the present situation. As a result, businesses perform well and earn increased revenue.

  2. In addition, it influences the spending behavior of consumers when the market is dull. When the stock price is declining, consumers feel that they are losing a lot of money and as a result, they curb their spending habits. This greatly affects businesses as people control their buying of essential items and totally avoid buying the non-essential items such as luxury goods or an additional phone/car.

  3. It also provides an opportunity to earn greater returns on investment on the capital costs involved. An increase in the stock market value will result in an increase in the value of all assets including fiat money and universal currencies. This indirectly allows businesses to generate more capital by issuing more shares or stocks and to use the existing stock as an advantage/leverage over their competitors. Additionally, the same approach can be used to acquire underperforming competitors.

  4. Additionally, it is a perfect tool to predict and foresee economic instability. Although the deductions are not always accurate, it provides some great information as to the present and future stock market trends based on historical data. One common application of this that it can be effectively used to predict future recessions and market crashes.

  5. Moreover, it determines the credit flexibility in an economy. It is all about credit and borrowing these days. This will indirectly depend on the interest rates of the amount borrowed, which is directly depended on the market’s rise or fall, in addition to customer’s credit history. When the market is declining, it creates an air of uncertainty, which increases the risk involved in the cash flows. This increase in the risk will increase the interest charged on the amount borrowed and as a result, make credit an expensive affair.