What Are Stocks:
Stocks are a share of the ownership of a company. If the company does well, or even if everyone thinks the company is going to do well, the price of the stock goes up. In addition, many companies give a little dividend payment each year to the stockholders, which provides extra value.
Why Stocks Are Important to the US Economy:
Stocks are how companies get funded to grow larger. Usually, when someone wants to start a business, they pay for it with loans or even their own credit cards. Once they grow the company enough, they can get bank loans, or even float their own bonds to individual investors. But, eventually they will need a lot of money to really take the business to the next phase.
This is when they will sell the first stocks, called taking the company public. Once that happens, no individual person owns the company because they have sold it to the stockholders.
Since the U.S. stock market is so sophisticated, it is easier in this country than in many others to take a company public. This helps the economy grow, since it provides a boost up to companies wishing to grow very large. The stock markets sophistication means that information on companies is easy to obtain, and this increases the trust of investors from around the world. As a result, the U.S. stock market attracts more investors, making it even easier for a U.S. company to go public.
The stock market is also an economic indicator of how well the US economy is doing. If investors are confident in the economy, they will buy stocks, Some experts believe it can often predict by about six months what the savviest investors think the economy will be doing.