A stock market is an interconnected network of investors and traders that determines the price of publicly traded stocks. A company that decides to go public will list its shares for trading on a national or regional exchange. From there, individual investors, from college students to billionaire hedge funds, can buy and sell shares of that company in small or large batches. It is the collective demand for these stocks, weighed against the supply of shares available in the market, that produces those prices you see listed in your investment accounts or online graphs.
For a share of stock to be “in the market,” it must be traded at a price that is higher than the last price that buyers and sellers agreed to. A stock’s price changes frequently, as new buyers and sellers continually negotiate with each other. The factors that drive demand for stocks are many and varied, but they typically fall into two categories: fundamental and technical. The former refer to a company’s earnings and profitability from the goods or services it provides, while the latter are based on trends in broader economic and investor psychology.
Today, the stock market has taken on a far more important role in the economy, reflecting changes brought about by financialization. A healthy stock market not only provides a gauge of an overall company’s health and growth; it also affects the bottom lines of many Americans, whose retirement and investing portfolios are tied to it. This is why, at perilous times—such as the 2007-08 crash or the pandemic of a few years ago—the Federal Reserve and government felt obligated to step in to protect the wealth and savings of a broad swath of American families.
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