Question

stock market expert says that he expects the stock market to continue to decline. of the investors believe expert, what does this do to the demand NOW? how demand shifts? thank you in advance for explanation.

Answer 1

Stock market expert expects the stock market to decline. If all the investors believe the same, then there would be a major sell off in the industry.

All investors holding stock will sell off their securities and the demand for the stocks will go bleak as people expect the stock market to decline further.

Thus, the demand will be low, i.e. there would be a parallel shift in the demand curve to the left side of the graph indicating a drop in demand.

this drop in demand with adequate supply due to sell off will further put pressure on the stock prices, thus making the markets go more down in the short run.

This phenomenon will continue till the market reflects the future potential earnings of the firms in the stock prices based on the estimates on current economy. At this point, sell off will reduce and supply would get stable generating demand for stock at good bargain prices.