Stock talk — what is it?
Let’s talk about stocks. You’ve probably heard all about them, whether it was the Gamestop meme stock obsession a few years ago, or the mini crash that we’re having now.
What is a stock?
What is a stock, though? To see how the economy is doing, a casual observer might open up their stocks app and see the general trend of the S&P 500 and the Dow Jones (those indexes with huge numbers) and make a judgment based on that. However, that’s actually false. Currently, the stock market has been falling but the economy is doing decently well.
The stock market works off belief and expectations. Here’s where the economic indicators come into play. If any stock is trending upwards, great. That means that a company is expected to have revenue or profit that either meets or exceeds expectations for the time period they’re measuring (usually in quarters or years). However, the opposite is true as well — a downward trend means that the company didn’t do so well and estimated earnings are tanking. Or, that macro conditions are changing, or, as evidenced in the current environment, interest rates are expected to rise.
Ultimately, if you look at this upward/downward trend across the stock market, you can get a decent idea of not how the economy is doing, but how confident investors are in the economy. It’s not a terrible indicator, but sometimes, investors are simply dead wrong. The stock market is also pretty easy to manipulate. Just as we saw with Gamestop, Bed Bath & Beyond, and AMC stock, a group of regular investors can drive up the price of a particular stock exponentially. Quite similarly, hedge fund managers, Wall Street investors, and other big players can also manipulate the stock price in their favor. The government (aka the Federal Reserve) can easily get involved as well. It can raise or lower interest rates and set new laws.
What the stock market is telling us now
It’s not looking so good right now. As of last week, Friday’s 3.4% drop in the S&P 500 was the “seventh daily decline of 3% or more this year,” according to investopedia.com. The only years with that many or more 3% drops: 2008 and 2009 — the peak of the financial crisis — and 2020 during COVID. Some economists, as they’ve been predicting for months, are warning that there’s going to be a recession in 2023.
The good amid the bad
I’ll let Warren Buffet say it best: “In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.” So, if you have some extra cash to spare, it might not hurt to put that money into some long-term investments that you don’t need to check for a while. Those stocks are most likely cheaper right now and can be a decent investment for the future. Good luck. Of course, timing is everything. It could still fall.
