What does the value of a stock market really mean?

Question

I've noticed that the FTSE 100 used to be higher than the Germand stock market, but now the main one in Germany is much higher. Does that mean that the German economy is doing better than the British one? Or that German companies are doing better than their British counterparts?

Answer 1

Stock Indices can be a good indicator of a countries eocnomic well being. It is infact a leading indicator of a countries economies well being.
Relative strengths can be used to figure out the state of well being of different economies. If one is going up and the other is sluggish then the one that is going up is in good shape for the present. Tides can change tommorrow as the economic luck shifts among countries, it depends on the regulations and policies adopted by each country and how it reflects in the economy.

Answer 2

All stock markets have a different base to work from. All you can say is that it is going up or down. At the moment the value of the shares in the FOOTSIE 100 index are steadily moving up, indicating that investors see those companies as doing well and buy the stock. As investors see a company in decline they will sell the stock and down will come the share price. This in turn causes a downfall in the 100 index. If all companies are a effected by say some down turn in a market then the share prices and thus the 100 share index falls rapidly. Other reasons for a fall in price is that investors hold on to their shares until they reach a certain value and then sell for the profit.
Happy New Year.

Answer 3

Stock markets are like barometers, very sensitive to changes both on micro (individual firm ) and macro (the economy as a whole) levels. The basic approach to valuation is the expectation of the investor on the margin about possible returns and also the perception of risk of such an investor. It is the risk-return trade-off which gives a scrip/share/stock its current value (or value at zero time). In technical terms, the value of a share of stock is the present value of future expected cash flows from the share concerned. All future expected returns are discounted at a rate which reflects both the risk and the prevailing market return. Now, the price actually prevailing in the market could be equal to or more than or less than this present value. In the event of eqality, the value is equal to the price; when value is more than price, the share is underpriced and vice versa. All selling and buying activity is prompted by these rules of the game. There could be several other non-intrinsic factors affection current prices like, government policy shifts affecting a particular industry, market sentiment, speculative pressures, liquidity factors (i.e., availability or scarcity of floating stocks of a given share of stock), and so on. Sometimes, persons privy to some very special information or expected announcemtn say a dividend or a bonus or a share split or a rights offering, attempt to trade making a misuse of such privileged information. This tends to send the market in shock waves and is declared illegal with very stiff and exemplary punishments. In a dynamic world, changes take place so swiftly that one cannot take just a one-time view like the German economy is doing better than the British economy or the German corporate sector is doing better than the British corporate sector and so on. Events, expectations, and valuations keep changing and the other factors also tend to change at a rapid pace and the market responds to all of them like a barometer responding very faithfully to air pressures sought to be measured with it help.

Answer 4

stock market prices reflect investors future expectations of business. If they feel the future is bright for a certain company or companies within an economy the stock market will reflect this optimism and go up, as investors buy more shares.

However, if investors feel that a company will not do so well (maybe after issue of end of year results showing fall in profit, but this is very simple example) they may sell their shares, as they feel they will devalue, and they could loose money.

But basically the value of the stock market changes to reflect the future expectations of investors. Investors will look at both individual companies and the economy they operate in, it would be very difficult to separate these aspects when making a decision to invest or sell.

Answer 5

costs often have reacted in boost to expectancies of earnings or loss, so as that as quickly as earnings or loss is pronounced, if the earnings even nonetheless sturdy is below what became predicted, we see human beings reducing the fee they're going to pay for that inventory. If losses that have been envisioned at the instant are not almost as undesirable as predicted, it somewhat is sturdy information. So costs react to the version between previous expectation and present day expectation. If a company has a important competitor that comments lots greater effective or worse salary than predicted, some 2nd look of the place this company lands in the aggressive panorama will reason shift in its values. Even understanding that a company's products are having difficulty in the industry or a competitor grants investors reason to re-evaluate fee.