What does a decline in the stock market really indicate?

Question

I only have a marginal understanding of the stock market and how it works. Any economists out there want to help me out? The biggest source of confusion for me is how dropping stocks affect the real world. Here's what I know, fill me in on anything I'm missing or anything I completely misconstrue: the economy slumps when stock prices/stock sales drop, which indicates that businesses aren't selling/doing as well. Does this mean that prices jump to accomodate for drops in sales, and so on? Any help would be great, I just don't understand the real implications of slumping stocks in relation to businesses/individuals.

Answer 1

The market index that declined today are only a reflection of a specific set of stocks and their prices.  If stock prices go down, the expectation of investors is that profits will go be heading down in the future.  The economy does not slump because stocks go down, it is the other way around.  The stocks go down because that company is not expected to do well.  If most companies have a poor outlook, then stock prices go down.  So if the market drops, it is simply a reflection of current and future expectations for many companies.

Prices generally go down when the economy slows down, because people without money will only shop for bargains.  However, some things like gas and food are necessities, so they may not get cheaper.

You can think of the stock market as like the thermometer for larger businesses.  When companies do poorly, then they have to lay people off and stop spending so that affects the ability of those people to earn and spend money.

Answer 2

panic sell off, and based on economic data investors are expectating our economy to go down

but mostly is because of high oil price.

stock market reflects future, not current.