How Stocks Impact the Global Economy

Stock markets not only influence how corporations receive funding, but the entire wealth of nations as well.  In this technological age of trading and investing, investors from around the world have vested in many different stock markets at any moment in time. Looking at your own mutual fund holdings, you might be diversified across dozens of countries, especially if you're vested in a foreign holdings mutual fund.  The globalization of today's stock markets tie together the financial welfare of all our countries, truly demonstrating that stocks heavily influence the performance of all countries around the world.

Markets Felt Around the World

When a stock market sell off occurs in the United States, either on the New York Stock Exchange, NASDAQ or even the American Stock Exchange, the pain is felt in various regions around the world. Large sell offs or giant bull runs in a major stock market will often drop or pull up the value of other stock markets around the world. News from China is as relevant there as it is to people in the United States. The globalization that has occurred in the past 50 years is paramount to healthy economies and bull market stocks.

Businesses Need Capital Investment

The stock markets of the world are the ultimate vehicle for modern businesses to seek capital for expansion. By selling pieces of a company on the exchanges, companies can raise money for expansion without seeking debt based funding.  This significantly helps domestic companies expand into multi-national corporations.  Simultaneously, this process allows investors the ability to pick good companies and make money as they expand and grow; more valuable companies means higher stock prices and good returns for all invested. One could make the case that without the stock markets, there would be very little growth in the business world. The amount of money that is necessary to fund many of the world's companies cannot come solely from private banks or institutions; however, opening an investment up to millions of investors around the world allows for additional capital, even from average Joes.

Stock Markets Allow People to Invest on a Shoestring

The stock markets are also necessary as fundamental piece of the economy. Without the stock markets, it would take a billion dollar bank account to be able to buy and sell whole businesses. Today, it is possible to buy a piece of the billion dollar WalMart and share in its success for just $55. Ordinary people are finally able to tap into what has made the most billionaires in the history of the world. The stock markets are a necessary function of a free market economy, allowing people to rise from the bottom to the top with investing talent.

Stock Markets Create and Destroy the Wealth of Whole Countries

Because the world markets are so entangled, stock price movements can completely destroy or build an economy. During the bull run of the 1990s, the United States completed itself as a consumption economy.  But in 1997, with the Asian financial crisis, many Southeast Asian countries lost their entire federal coffers overnight, while the people of those countries saw their currency de-value overnight - all from the crash in their stock markets.  Even in America, in 2001-2002 when the stock markets dropped considerably from the dot-com crash, many people went from the top of the world to broke in just a matter of months.  Indeed, the world's stock markets are the great equalizer of wealth, on both a national and individual basis.