The stock market is not the economy, rather it is one variable that indicates how the economy is doing and may perform down the road.
“The stock market is a market where stocks, a type of investment that represents ownership in a company are traded,” said Jessica Schieder, a federal tax policy fellow at the Institute on Taxation and Economic Policy. The stock market is where investors attempt to predict what’s going to happen in the economy or with a company’s stock price.
In contrast, the economy is a sum of goods and services, all of the things produced measured by gross domestic product (GDP).
“The stock market can be moody,” explains Laura Gonzalez, associate professor of finance at California State University, Long Beach. “Sometimes the stock market is positive about the future and sometimes it’s negative about the future.”
So remember, the stock market is not the economy. And the economy is not the stock market. But they are related.
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