However, economists who have studied the topic generally think that an impact of a change in stock market generated wealth on consumption begins to build in the first year and may take two to three years to be fully felt.
Additionally, equity markets are a source of investment capital, and valuations in the stock market are one determinant of the cost of capital for businesses. External financing conditions, including equity valuations, are important because recent investments have increasingly been financed from external sources. External funds raised now account for about 20 percent of nominal capital expenditures-close to the highs of the past two decades.