Kavan Choksi On How Does The Stock Market In The USA Affect The GDP?
The stock market is often regarded as a sentiment indicator and can influence a country’s gross domestic product or GDP. The GDP is a measurement of the output of the services and goods in the economy. As there is a rise in the prices of stocks in the market, there is a shift in consumer sentiment in the market. When this sentiment changes, people’s spending habits tend to change as well. This drives the growth of the GDP. However, the changes in the stock market can either have a positive or a negative impact on a nation’s GDP.
Kavan Choksi on understanding the impact of the stock market on the GDP
Leading investor, business management expert, and wealth consultant, Kavan Choksi states one must first review what drives economic growth in the nation before understanding how the stock market impacts the GDP. In the USA, the GDP of the economy is driven primarily by investment and spending. The GDP is displayed as a growth rate percentage from one- time duration to another.
He cites the above with an example- for instance, the quarter-to-quarter rate of growth might be 2%- this means that the economy in the USA grew by 2% in that specific quarter on an annual basis.
What are the key drivers of the GDP in a nation?
He further adds that the GDP has some key components, and they are consumer spending, which again is the primary driver in the USA for GDP. Business spending includes the purchases of new equipment and plants, the investment in new technologies, and the building of new factories and offices is another driver of the GDP in the economy.
Exports from the sales of domestic companies to buyers internationally boost the GDP growth in the nation, and government spending covers the building of bridges, roads, and subsidies for industries like agriculture. All of the above is influenced by investors- this can be either positive or negative via the stock market.
GDP and the bull market
When it comes to bull markets, business and finance expert Kavan Choksi states that a bull market surfaces when there is a rise in the equity markets. The stock market has an effect on the GDP by impacting financial conditions and the confidence of the consumer. When stocks are in a rising trend, that is, the bull market, there is a high level of optimism that surrounds the entire economy and the prospects of different stocks in the market.
Companies release shares in the market to raise capital for their business operations
If companies release new shares in the stock market to raise capital, they can deploy those funds to boost operations, make investments in projects, and employ more workers.
All of the above activities in the economy boost its GDP. When there is a bull market, it is easier for companies to release new shares, as there is a higher demand for equities. In order words, if the GDP for a nation is rising, this is an indication it is performing well.
