How does economic growth typically influence equity markets?

Economic growth typically results in an environment where businesses experience increased demand for their goods and services. As the economy expands, consumers generally have more disposable income, which can lead to higher sales and, consequently, greater corporate profits. When companies report higher profits, it often boosts investor confidence, leading to increased demand for their stocks.

Investors are generally willing to pay more for shares in companies that are thriving and showing potential for continued growth. This dynamic can propel stock prices upward as investors anticipate further success and higher returns. Moreover, in a growing economy, companies often invest in expansion, hire more employees, and innovate, all of which can contribute to long-term value creation and sustained increases in stock prices.

The other options do not align with the typical relationship between economic growth and equity markets, as they either suggest that growth negatively impacts profits or has no significant effect on stock prices, which runs counter to historical trends observed in thriving economic conditions.