Eli5; Why is the US economy so dictated by the ups & downs of Wall Street?
In: 15
A stock’s price is a directional indicator. Think of it as your engine’s temperature gauge.
The answer you are looking for is more so, why do markets drop? Much of it is market sentiment. Crashes happen because everyone runs for the door at the same time. Everyone is looking to sell at _just_ the right time, they all have their ears to the ground listening for the faintest rumble. Someone shouts fire and everyone runs for the door.
Companies barrow money from banks at a set interest rate. Lower interest rates mean more loans are given out.
Governments set interest rates based on the health of the market. One major indicator of market health is how many people are repaying their loans.
If companies begin to default on their loans, this can have ripple effects through out the banking system. The overwhelming majority of financial crashes were and are triggered by defaults.
A good example of fear (market sentiment) and interest rates colliding to causing a crash, would be the [2020 market crash](https://en.wikipedia.org/wiki/2020_stock_market_crash?wprov=sfla1).
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