How The 900 Point Drop In The Stock Market Will Affect Businesses

This past Thursday, the stock market officially dropped 900 points which makes the month of October the markets biggest loss since February. The numbers reported are enough to make any investor pull out. While the stocks took a sudden plunge, panic also set in for not only the investors watching but for the business. This comes unexpectedly as the blue-chip stock hit an all-time high. Technology stocks took the majority of the damage in this decline. Here are the ways that this 900-point drop will affect businesses.

Financial health is affected

When investors are looking at a business, many observe the price. When a stock price is firm, this is an indicator of the business’s financial health. A business is determined to be financially feasible by analysts to inform investors by evaluating the financial data and stock price of the business. The stock price is an indicator for determining if the business’s potentials are content or concerned. With the plunge, several businesses are at risk of not being able to raise capital because potential investors are being told by analysts or brokers that this business may not be in their best financial interest. If the stock for the business continues to fall, they could lose their current investors to, which in turn is critical to their financial health and data reports.

The looming risk of a takeover

A takeover of a business is high when the stock price falls. This is a risk because now the business’s stock price is cheaper. This negatively affects businesses because they are not making capital once the takeover is complete. To understand, the public companies can distribute their shares among thousands of shareholders who have the ability to sell whenever they choose. When organizing a takeover, the bidders have a higher percentage of being able to offer a better price to shareholders solely because the trading price is lower.

This is another reason how this 900-point drop will affect businesses. If their prices are on the cheap side and bidders can and will perform a takeover. The problem with this is that the interests that are being protected by management no longer will be because management for the company will be released. This does not apply to just bidders; another business can be keeping an eye on a declining stock price of another business to perform a takeover. The business acquiring the other is able to avoid taking a debt because they have the finances to back the acquisition.

Spending halts

As an investor, people tend to continuously spend more when their stock of the business they are investing in is on the rise. This indicates that the business is in good financial standing and so is their money. The equity markets improves in wealth when people invest in them for the business as the stocks are increasing. The formula is usually increased wealth = increased spending because outside of the stock market, investors, who are most likely consumers of the business, are actively buying the goods or services. The spending increases revenue for the businesses.

The opposite occurs when numbers drop. So, this 900-point drop has affected the equity market, the revenue, the stock price, and the spending habits of the consumers. When a consumer reviews their portfolio and sees a rapid drop in value they are not going to continue their spending habit. As stated above, an increase in spending means an increase in business revenue, but a decrease in spending means the same for the revenue. This is especially true for businesses who sell non-necessity goods and services, such as high-end vehicles or entertainment, which will cause the consumers the willingly relinquish the items if they are suddenly confined to a smaller budget.

Tech companies will be affected by the drop

Tech companies such as Caterpillar, who took the lead in the recent stock market point decline according to the Dow Jones Industrial Average. The shares of such companies as Facebook, Apple, Amazon, and Netflix have been affected also. Unfortunately, Facebook, Twitter, and Alphabet, a Google-parent company, are receiving extreme governing scrutiny from the U.S. government because of the trade fight that is affecting the supply chain from China. This is due to Trump’s stern stance on Beijing. Chris Zaccarelli, who is Independent Advisor Alliance’s CIO (chief investment officer) mentioned that because of the trade war with China, tech businesses will be affected the most and need to be concerned about the rising interest rates.

Experts are chiming in and saying that this point down is a correction and not the beginning of a crash. Businesses are being informed to not panic, and do not time the market.

Echo Boomers & Shifting Geographies

7.10.2016 | Echo Boomers & Shifting Geographies – Rusty Tweed team

Rise in U.S. Birth Rates

As the U.S. economy has grown over the last three years, birth rates have also been increasing. As reported in Forbes last year, the number of children born in 2013 saw the first annual increase since 2007. Simultaneously, new household formation has begun to recover after falling to dramatic lows after the 2008 Recession. This has consequences for the housing market, namely related to consumer demand and single-family home construction.

As the millennial generation begins to enter their 30s, the main years for raising children, it will become increasingly important for cities to be family friendly. Demographer Wendell Cox surveyed the data for Forbes on the numbers of 5-14 year olds in 52 metropolitan areas since 2000. Parents often move house during this age range when faced with issues such as the cost of housing, long-term economic security and school quality.

echo boomers

Largest Increases of Children are seen in the South and Intermountain West

The metro areas that have seen the most significant amount of growth in families are largely located in the South and Intermountain West. Raleigh, NC was top-ranked out of the 52 cities in terms of in-migration of 5-14 year olds because of its strong economy. Raleigh saw a 55.7% increase between 2000-2013. This is 10 times the levels of national growth rate of 0.5%. Austin, Texas came second in the list. Las Vegas, Nevada ranked third and Charlotte, North Carolina, was at fourth place. Several of these cities saw high population growth in the early 2000s. However, this  bottomed out during the Recession years and afterwards.

Largest Declines are seen in the Coastal Metropolitan Areas

Since 2000, the most significant declines in the 5 to 14 group have largely taken place in the major coastal metropolitan areas. Los Angeles is at 46th out of the 52 cities on Forbes’ list. Although the general population grew in LA since 2000, the child population fell by 303,000, or 15.3%. Other cities high on the list with low percentages of children include New York, San Francisco and Boston. High housing prices, in particular for single-family homes, may push people with young children away. The most significant decline in child populations in the 2010 Census occurred in the urban core and close-in suburbs of expensive metro areas.

Economics & Affordability

According to Forbes, the relationship between economics and affordability largely drive family migration. In some of the key cities, including LA, usually only the wealthiest areas have reliable public schools. High housing prices make moving into these areas difficult compared to other parts of the country. In other areas, a single-family unit can be purchased for $250,000 and still be close to strong public schools. The more expensive urban areas need to expand their educational choices. Otherwise, families will continue to look elsewhere for the nexus of affordable housing and decent education.

Cities that can draw the echo boomers & their young families will have many things on their side in the future. Their increasingly child-free counterparts will lack an increasing adult labor force and a growing consumer market. Not to mention a short-term boost to the local construction industry.