The stock market is a so-so indicator of economic
expansion and growth at
best. The old joke says that the stock market
has predicted 20 of the last 5
recessions. A company can make millions of dollars
of profit, and still lose
share values, simply because of speculation.
To have a greater grasp on
systems, you should be looking at the three types
of economic indicators
(leading, coincident, and lagging). The stock
market is only one (a leading
economic indicator, and not the only leading
indicator). The crash of 1987
did not occur because of a bad economy, rather,
it occurred because of a
perception of a bad economy. In 1991, during
the recession, the stock market
was reaching new all-time highs. In 1990, Oracle
systems posted record
revenues, 54% higher than the year before.
How did it's stock do? It went
down 31%. The stock market is simply one of many
indicators of an economy.
Used alone to formulate a perception of the economy,
you're getting a false
picture.
What stock is good at doing is providing companies
with capital to a)build
further business and b)create jobs in future
settings (hmmmm...). Thus,
stocks are NOT bought (or at least should not
be bought) based on current
conditions, rather they're based on perceived
future conditions. Why did
people sell off tech shares a little while ago
(think Microsoft/Justice
Dept. as one indicator)? Records have also shown
that the stock market
exists independently of global occurences and
crises (I'll be happy to
provide examples if you like).
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