How and why should a business monitor the stock exchange?
Whatever types of investments your business favours, it’s important to monitor the performance of the market to ensure you’re making fully informed decisions.
Any change in the stock market can affect your business, either directly, or via the investments you’ve made. And while you can’t predict the exact direction in which the market will go, having up to date knowledge will give you an advantage when it comes to opportunities.
We’ll explore the reasons why it’s vital to keep informed about market news when stock trading or focussing on in-house growth, and any factors that are likely to influence performance.
The wider economy
An economy’s health is often a prevailing factor in how well you can expect your business to perform in the year ahead. A healthy, rising economy typically equates to growth opportunities for a business due to increased customer spending, higher disposable income and an uptick in employment. It’s often a time when businesses look to make new investments and identify key areas to improve or expand.
A struggling economy might indicate the need to reduce spending or adopt a more conservative approach to investments. High interest rates and increased inflation can also indicate the need to focus on keeping your business stable and strong in volatile times. This might mean less focus on growth.
The stock market usually reflects any volatility relating to economical concerns so it’s useful to monitor any significant changes.
Understanding exchange rates is key if your business trades overseas. Whether you import or export goods, it’s useful to know how much you can get for your money. Strong currencies can mean it’s more expensive to buy internationally while a weaker currency can make goods and services cheaper.
This information is useful when forecasting revenue, making decisions about suppliers and identifying new areas to expand into.
New policies are often created that affect how your business operates, either in their own country or overseas. Environment, social and governance (ESG) policies can impact your business and create the need to adapt or change how you operate. Updated tax regulations can also have a bearing on your financial forecast.
As with other factors, these can often affect companies listed on the stock market, so monitoring these effects can help predict future performance.
Although monitoring the stock market is not a foolproof way of being able to make successful business investment decisions, it can be helpful as a tool to spot the best opportunities and to understand more risky investments. It can also help you when it comes to deciding on the type of commodities or stocks you should be putting your money into.