The Stock Market: A Rundown (2024)

Wall Street, shareholders, investments.

You’ve heard it said before: “Markets are down.” Or “Markets are up.” But what exactly does it mean?

The Stock Market

For starters, a market is where “buyers and sellers can meet to facilitate the exchange or transaction of goods and services.” ¹⁵ But the market you are probably wondering about is the U.S. Stock Market. The U.S. Stock Market is regulated by Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). ⁴

“Stock markets are components of a free-market economy because they enable democratized access to investor trading and exchange of capital.” ⁴ Put a little more simply, the stock market provides a secure environment for share transactions to take place. ⁴ A share is a unit of ownership within a company. ¹⁷

“When you buy a share, you are investing in that company and hoping that its value will increase over time. When you sell a share, you are getting back the money you invested, plus or minus any change in the share price.”
James Chen ⁴

Shares are listed and traded on different exchanges. We’ll discuss that next.

Market Exchanges

Market exchange refers to an economic system in which goods and services are produced, distributed, and exchanged by the forces of price, supply, and demand. ²

The main exchanges I’ll go over include the New York Stock Exchange (NYSE) and the NASDAQ – these are the two major stock exchanges in the United States. ²¹

The New York Stock Exchange (NYSE)

Located at 11 Wall Street, Lower Manhattan, New York City, NYSE is the world’s largest stock exchange by market capitalization. ^{16, 22}

“The NYSE is where companies raise capital that they use to shape the future. As we’ve grown, our community has expanded to include leaders across sectors, and we strive to help make connections, facilitate conversations, and advance the interests of our listed companies and a broad range of investors.”
NYSE ¹⁶

NYSE is open for trading Monday through Friday from 9:30 a.m. to 4:00 p.m. ET. ¹⁶It lists the most important, publicly traded American companies and is the premier venue for stock trading. ¹⁶

NASDAQ

The Nasdaq is known for listing many technology and growth-oriented companies – think Apple, Microsoft, Amazon, and Tesla. ²⁸

“NASDAQ is a U.S. based stock exchange that is dominated by technology stocks.”
Kane Pepi ²⁵

The main difference between the two exchanges is that the NYSE is an auction market that uses specialists, whereas the NASDAQ is a dealer market with many market makers in competition with one another. ¹⁴

What Can They Tell Us About The Economy?

Both exchanges track the performance of thousands of companies across various sectors and industries and are followed by economists as indicators of the economy. Other sources of data and analysis used include the S&P 500 – a stock market index that tracks the performance of 500 of the largest publicly traded companies in the United States. ³⁶

“On average, a company is dropped and replaced by another only about once every two years. When they do it’s because a company’s importance or influence in its industry has fallen.”
Jim Probasco ²⁷

Stock exchanges play a vital role in the functioning of the economy – for instance, they help companies raise money to expand, hire more qualified staff and repair or replace equipment. ⁵ “Exchanges are the principal indicator and reflection of a country’s financial condition and stability”. ⁵

When you hear the market is ‘up’ or ‘down’, consumer confidence is up or down.

What Does Consumer Confidence Have To Do With Anthing?

Basically, everything. It measures the degree of optimism that consumers feel about the state of the economy and their personal financial situation. ³¹

“Consumer confidence is important for investors because it can indicate consumer spending and the effectiveness of monetary policy.”
Justin Kuepper ¹⁹

It literally predicts consumer spending patterns – thus, allowing companies to adjust their spending (whether on staffing, product, etc.).

You can visit MarketWatch.com to see live updates.

Stocks, Shares, And Bonds

A stock is a very generalized term that refers to a share of ownership of one or more companies. ³³Shares, on the other hand, is more specific and refers to a single unit of ownership in a company. ³⁰

“Holding a company’s stock means that you are one of the many owners (shareholders) of a company, and, as such, you have a claim (albeit usually very small) to everything the company owns.”
Desjardins Securities Inc ³³

Companies issue stocks on stock exchanges to raise money. ²³ Investors then buy and sell them in publicly traded companies. ¹³ Most individuals invest in stocks online, through a brokerage account. ⁶ As far as money goes… yes, you certainly can make money from investing in stocks. However, it’s not necessarily a simple process and additionally, it can be very expensive to get started. ³ “You need to buy stocks that cost hundreds or thousands of dollars per share and diversify your portfolio to reduce risk.” ³ However, stock investments can help you grow your wealth if done correctly. ²³

You earn money from dividends.

Dividends are payments that public companies distribute to their shareholders. ²⁰ They’re paid on a regular basis via cash or additional shares. ²⁴

It’s worth noting that there are a lot of different types of stocks. I’m not going to get too much into that right now, but you can learn more about the different types of stocks by visiting the RBC Direct Investing Inc. Website.

Unlike stocks, bonds issued by companies give you no ownership rights. ³³ A bond is a loan from an investor to a borrower (usually a company or the government). ³² Bonds are issued by governments and corporations when they want to raise money. ³⁴

“An investor who buys a government bond is lending the government money. If an investor buys a corporate bond, the investor is lending the corporation money. Like a loan, a bond pays interest periodically and repays the principal at a stated time, known as maturity.”
Sara Adjir & Jeroen Van Bezooijen ¹

The benefits of bonds are that they provide you with a steady stream of income as well as offset some of the volatility you might experience with stocks. ³⁴

For more information on bonds and choosing the right one for your needs, visit Vanguard.

What Is The Stock Market’s Relevance To You?

I think the first point of mention is that well, the stock market is extremely competitive. Why, might you wonder? Because there are hundreds of buyers and sellers. “The price of stocks will always reflect the ‘true’ market value because if it is overvalued, it becomes profitable to sell. If it is undervalued, it becomes profitable to buy.” ²⁶

“The markets allow for price discovery for shares of corporations and serve as a barometer for the overall economy.”
James Chen ⁴

The stock market allows companies to issue and sell their shares to the public through a process known as an Initial Public Offering (IPO). ⁴ Ultimately, it helps companies raise money from investors. ⁴

This all sounds great for companies… But what about you? According to Kiril Nikolaev, CFA, the top three reasons you should care about investing in the stock market are:

It helps you keep up with inflation. ³⁵(I don’t know about you, but inflation has everything to do with whether I consider myself comfortable or struggling).
Stocks have proven to offer the most growth potential. ³⁵ “Studies have shown that stocks have earned more than bonds in the longer term.” ³⁵
You don’t have to put all of your money into them. ³⁵ ”As Spiderman once said, with great power comes great responsibility. In this case, with great return comes great risk!” ³⁵

There are a lot of sites/apps that can allow you to grow your portfolio slowly and as risk-lessly as possible. If you are interested in learning more about growing your portfolio as a beginner, I would highly recommend checking out: Robinhood, Acorns, Charles Schwab, or SoFi.