The bond and the stock market are related because investors invest into both of them. Bonds are safer than stocks but the downside is that bonds offer lower returns. The stocks, on the other hand, are riskier and they offer a higher return.
Before you start investing understand the bond and the stock market
What is a bond? Bond is basically a loan that you give to the government or a company. The interest that is paid is the same all through the life of the loan. If the company does not default then you will get back the principal amount at the end of the tenure. You thus need to check the rating of the company before you invest in that company.
The value of the bond also changes and you may want to sell it in the secondary market. The bond trader will first check the return of the bond which is called the yield. The bonds that have low-interest rates or a poor rating should not be invested into.
Stocks on the other hand on Crypto VIP Club give you ownership of a company and its value is dependent on how the company is performing. The company will release its earnings in every quarter and this lets the value of the stock to change on a daily basis. One invests in the stock market based on what he thinks will be that particular company future earnings.
The relation between the two
The stock market and the bond market are inversely correlated. The stock market performs when the economy is doing well. The companies have high demand because they are having better sales and this makes the investors optimistic about the performance of the company. They invest in the stock market because stock market investment helps to beat inflation. Thus when the economy is booming investors sell the bonds that they hold and invest the money into the stock market.
On the other hand, when the economy is not doing well the consumers buy less and the stock prices then tend to fall down. When this happens the investors are not ready to invest their money into the equity market because of the risks involved and they thus invest their capital in the safe bond markets. They now prefer the guaranteed returns that the bond market offers.
It could also happen that the stock market and the bond market are going up together. This is a scenario in the market when there is too much liquid money floating in the market and the money is chasing a fewer number of investments. This is also the case when there are investors in the market who are optimistic about the market and there are almost equal numbers of them who are pessimistic about the market performance.
The other way round is also true – When the stock and the bond market fall together. When this happens it creates panic among the investors and they end up selling everything. In such a scenario you should look to invest your money in another commodity, gold.