Stock Market Resists Credit Crunch Bite And Rallies

Stock Market Resists
Credit Crunch Bite And Rallies

The Dow Jones industrial average falls almost 40 points. The Standard & Poors 500 dips to around 5 and Bond prices fall slightly. To chicken little this may seem like the sky is falling. However, the stock market continues to survive the credit crunch.

The stock market survives the credit crunch because of the people who invest have a forward looking ability. Investors look at indicators in anticipation of the future, not to dwell on the past. To those who own stocks tomorrow always comes and it is best to leave the yesterday behind.

Even with the Dow Jones Industrial average falling, at times, to almost 40 points, the stock market rallies back with assistance from the Federal Reserve. When the Federal Reserve lowers interest rates it allows companies to borrow more money to spur increase of profitability. Which in turn creates larger profits for shareholders and more money to be pushed into the economy.

Hearing such news as the Standard & Poors 500 dip or the fall of Bond prices, chicken little may be tempted to shout from the rooftops that the sky is falling. But a look at the Nasdaq composite index and you have seen a rise of almost 2 percent and a pull back in oil prices. These increases help to ease inflation concerns. Also with company mergers and acquisitions, stocks will continue to ride the wave of the credit crunch ups and downs. Falling energy prices gave airlines a needed lift in their stock allowing them to rise a few percentage points.

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Companies run on credit. When companies borrow money at lower interest rates, as the Federal Government had done, then companies show higher profits which allow for greater profits to stock investors. Stock ownership in a company is a valued projection of the cash flow and profit of said company. So when a company is allowed to borrow at a lower interest rate their profits are raised therefore pumping more money back into the economy and in retrospect back into their profit.

Other indicators of stock market survival are the steady earnings of several larger corporations. Included in this survival are venture capitalists availability to invest in floundering businesses. In some cases, venture capitalists are seeing the companies sales, in their portfolios, increase by a total of $140 million. An increase that has more than doubled its shares.

Also on the forefront of survival is the buyout of major corporations. This action allows shareholders to receive premium offers for their shares as well as the opportunity for those shareholders to invest in other companies. These investments help to keep companies afloat.

To investors, today's credit crunch is a rallying cry for opportunity. When persons have money to invest during a credit crunch often they invest into fixed income vehicles - bonds or stocks that carry lower risk but guaranteed returns. Once again, keeping the stock market afloat.

Private investors who have the ability to hold larger shares in companies offer the monetary backing for the continued growth and profitability of the companies they have a steak in. These innovative people are what help keep the stock market afloat. The stock market survives through these forward thinking individuals and venture capitalists. Investors see it as anticipating future sales and company growth not the chicken little viewpoint of the sky is falling.