So what are Bonds and Stocks?🏦 Bonds are loans you make to a corporation or government. The interest payments stay the same for the life of the loan. You receive the principal at the end if the company doesn't default. S&P ratings tell you how likely that is to happen.⚰🏛 ⠀⠀
The bond's value changes over time. It only matters if you want to sell it on the secondary market.
Stocks🛡🛒 are a share of the ownership of a company. Its value depends on corporate earnings. Corporations release their earnings reports each quarter. The stock's value also changes daily. It depends on traders' estimates of future earnings compared to competing companies.🏹 ⠀
Bonds affect the stock market📊 because they both compete for investors' dollars. Bonds are safer than stocks, but they offer a lower return. As a result, when stocks go up in value, bonds go down.🛢🗿
Stocks do well when the economy is booming. Consumers are buying and companies receive higher earnings thanks to higher demand.💡 Investors feel confident. They want to beat inflation, and stocks are the best way to do that. They sell their bonds and buy stocks.🔦🕯
When the economy slows🌍🗺, consumers buy less, corporate profits fall, and stock prices decline. That's when investors prefer the regular interest payments guaranteed by bonds.🔒 Sometimes, both stocks and bonds can go up in value at the same time🗝. ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
This happens when there is too much money, or liquidity, chasing too few investments. It happens at the top of a market. It could occurs when some investors are optimistic and others are pessimistic.📌
There are also times when stock and bonds both fall. That's when investors are in a panic and are selling everything. During those times, gold prices rise.📤📊