The key difference between stock market and economy is that the stock market is an exchange where individuals and corporations can buy, sell, or issue shares of a company, while the economy is the state of the production and consumption of goods and services within a specific country or region.
The economy and the stock market are not the same concepts, yet many people still use these words interchangeably in conversations. Although they both seem very similar, there are actually major differences between them.
CONTENTS
1. Overview and Key Difference
2. What is Stock Market
3. What is Economy
4. Stock Market vs Economy in Tabular Form
5. Summary – Stock Market vs Economy
What is Stock Market?
The stock market is a platform that enables individuals and corporations to buy, sell, and issue shares of a public company. These financial activities can be conducted as institutionalized physical exchanges or online exchanges. There can be multiple different stock exchanges within a country, and there are several other stock exchanges around the world. For example, In the USA, the two different leading stock exchanges are the Nasdaq and the NYSE.
The overall economy can affect the stock market as investors look at the economy to examine the value of money and whether it should be invested. If the economic outlook is pointing towards a decline, investors might want to save money instead of investing it in the stock market, which could lead to a decline in a share’s value. In addition, the outlook of a specific company could also affect its shares. For example, if the company reports a negative quarter and has a bad outlook on the immediate future, investors would sell their shares, causing the price to decline.
What is Economy?
The economy is a system pertaining to the production and consumption of goods and services within a country or specific region. The consumption and production of goods and services are used in an economy to meet the needs and wishes of the consumers and businesses that function within it.
There are several factors that influence and control the strength of a nation or region’s economy. These factors could be inside or outside the control of the governments, corporations, and citizens. These factors are called microeconomic factors, and they solely control the future outcomes of the economy. A macroeconomic factor is an environmental, geopolitical, or economic event that can damage or enhance the current and future state of an economy. Some examples of these microeconomic factors include interest rates, inflation, and fiscal policy.
What is the Difference Between Stock Market and Economy?
Both the stock market and the economy can be confusing concepts for many people, and some people might perceive them as the same thing. However, there is a distinct difference between stock market and economy. The economy includes all the activities undertaken for the purpose of production and consumption of goods and services within a specific country or region. On the other hand, the stock market is a platform to buy, sell, and issue shares of a public company. Thus, this is the key difference between stock market and economy. Moreover, the economy is affected by microeconomic factors such as interest rates and inflation, whereas the stock market is influenced by the economic outlook and a specific company’s outlook.
Below is a summary of the difference between stock market and economy in tabular form for side by side comparison.
Summary – Stock Market vs Economy
The economy and the stock market are very different concepts. The economy is the state of a country or region’s production and consumption of goods and services. On the other hand, the stock market is a platform that allows individuals and businesses to purchase, sell, and issue stock in a publicly-traded company. So, this is the key difference between stock market and economy.
Image Courtesy:
1. “NASDAQ stock market display” By bfishadow on Flickr (CC BY 2.0) via Commons Wikimedia
2. “Economy” (CC0) via Pix4free