Last editedJun 20212 min read
The stock market is often associated with high stakes and higher stress. Even if your small business is a million miles away from all that, stock market volatility can still affect you. Here’s what you need to know, starting with our market volatility definition.
What is stock market volatility?
Market volatility refers to the level of fluctuation the market is currently experiencing. So, when stock does not have a stable price – i.e., it changes every day, or even multiple times within the same day, in a way that no one can predict – you are experiencing market volatility. Stock prices are changeable by nature, but these changes increase in a volatile market, meaning normal changes of 1% or less can become as large as 5% or more.
Volatility can also occur within stock types, and is less alarming in some industries than others. For example, the stock of blue-chip companies tends to be relatively steady, but tech stock fluctuates far more. Outside of these industries, huge market volatility isn’t seen as “business as usual” and it often means an external event is the cause. In the case of 2020, COVID-19 had a huge impact on the stock market, causing massive levels of volatility.
Why does stock market volatility matter to my business?
You don’t have to be a trader on the floor to be hit by the implications of market volatility. Here are just some of the ways it can impact you and your business:
Credit
When the economy is in trouble, it puts people in financial difficulty. They are forced to turn to credit due to the volatile market, meaning they must put themselves in debt. Due to the unknowns and uncertainty of the market, interest goes up, which means it’s more expensive to borrow than before. The same will go for you if you need to reach out to a bank/lender for a business loan to see you through the hard times.
Consumers duck out
When the market is uncertain, customers are quick to exercise caution about their spending habits. Take 2020 – there was suddenly much less stability around jobs and futures. People stopped spending money they couldn’t afford to part with. While market volatility won’t always be ON the scale caused by COVID-19, when it does happen, people are likely to take notice. When the market is notably volatile, the event will most likely start making headlines, like the 2008 recession. Knowing the economy is not stable, whether this instability has directly impacted them or not, is enough for consumers to reign in their spending habits. This is something that is difficult to guard against, even if your business is doing well.
Investor interest
Investors who were interested in your company may have to step away if market volatility becomes an issue. Investors, just like everyone else, will be worried about the risk of striking big, expensive deals in the midst of stock market volatility. For public companies, the stock market’s behavior is even more important, and market volatility can directly impact business value.
Finding new talent
While a restless economy can lead to higher levels of unemployment, you may also experience the opposite if you are looking for new talent. Companies will try hard to cut costs to see out the times of uncertainty. This usually means retaining key employees and letting those in less-skilled roles go. People in these roles will also be in no rush to put themselves out of work. That can mean the best talent gets scared into staying put.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.
