Stock markets🌏🌐 can easily kick start recessions. Why?🤔🤔 ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
That's because stock prices reflect investor confidence ☺in their respective companies🏗 and as these companies generate the majority of the income for the economy...they are indeed an indicator of the economic performance. In Fact, in most countries, the revenue generated from the stock market accounts for more than 70% of GDP.
When stock prices crash,📉📌 this indicated investors have lost confidence🛢⚠️ in the market. As prices continue to spiral down this sentiment quickly passes on to consumers who then spend less and save more. In some cases, as in 2008, consumers will even go as far as withdrawing money from banks to hide underneath their pillows.🏃🏽♀️🏃🏼♂️ ⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀⠀
Declining stock prices also means investors are less wealthy as they cannot sell their stock for much. It also means there are fewer investments in companies and therefore companies have less money to invest. 💡🔦When stocks start crashing, this sentiment gets passed around investors and other indexes, funds and financial instruments begin to behave in a similar way.👫
A combination of all these events will eventually lead to more unemployment, less spending and in light of this less income for the Government. At this point, the recession has fully kicked in.🎃
A stock market crash doesn't always cause a recession, If the central bank can restore investor and consumer confidence then the economy will be rebound🎈🎎🎇