How does the entire stock & crypto overall market go up?

Question

If there wasn’t any money printing, wouldn’t there be as many losses to valuation to certain stocks/coins to compensate? I just don’t really grasp why certain stocks going up ends up pulling up other stocks of similar nature usually.

In: 2

Answer 1

You seem to be thinking along the lines of, “If Eric’s stock is worth $15,000 on Monday, that means somebody else — let’s call her Francis — has $15,000 sitting in a vault just waiting to give to Eric when he wants to turn in his stock for cash. If Eric’s stock is worth $18,000 on Tuesday, that means Francis now has $18,000 in her vault. Where did the extra $3,000 come from?”

That;s not how stock markets work.

The value of a stock — or more precisely, the *market capitalization* of a stock — is the last price someone paid for it.

Suppose Company X has 1,000,000 shares outstanding.

If the last trade on Monday is Alice buying shares from Bob for $50 each, the company’s market cap is $50,000,000.

If the last trade on Tuesday is Carol buying shares from Dave for $60 each, the company’s market cap is $60,000,000.

No new money was printed. If the trades were 100 shares each, on Monday Alice gave $5000 to Bob, and on Tuesday Carol gave $6000 to Dave.

Eric, who didn’t participate in the trades, has 300 shares. On Monday his 300 shares were worth $15,000. On Tuesday his 300 shares were worth $18,000.

This notion of value (sometimes called “mark to market”) is a lot more fuzzy than laypeople think. Just because Carol found Dave who was willing to buy her shares for $60 each, that doesn’t mean Eric will be able to find a buyer Francis who will do the same for him. We know Dave exists because the Carol / Dave trade actually occurred, but Francis is just a hypothetical that only exists in Eric’s imagination until Eric actually tries to sell his shares for $60 each and an Eric / Francis trade actually occurs (but it might not).

(Eric’s imagination isn’t entirely outside reality — The fact that Carol was able to sell her shares to Dave for $6,000 is a decent indication that someone will likely do the same for Eric.)