How Does the Gross Domestic Product (GDP) of a Country Affect the Stock Market?

What is the Gross Domestic Product (GDP)? 

The GDP is one of the leading indicators of the health of a country’s economy. It represents the total monetary value of all goods and services sold by the country over a specified period of time. The GDP is usually compared to the previous year’s GDP, this will gauge if the country’s economy has contracted or expanded. Computing a country’s GDP is quite complicated, but since it is an essential economic indicator, you can check almost any financial or economic web site and they will have the GDP trend for your particular country.

How does the GDP impact the stock market?

The GDP has a significant impact on the stock market. Since the GDP is the barometer of how a country’s economy has been doing, a lower GDP means the country’s economy has contracted thus translating to lower profit for companies and therefore lower stock prices. Conversely, a higher GDB signifies an improving economy and higher profit for companies, increasing stock prices.

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3 thoughts on “How Does the Gross Domestic Product (GDP) of a Country Affect the Stock Market?

  1. The problem with GDP is the numbers are always being adjusted. Plus the stock market moves on expectations. If investors think that the economy with be improving than stock prices will move higher. Investors will not wait to have the government confirm growth.

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