What Are the Five Factors That Affect the Stock Market?
The stock market, like the weather, can be quite unpredictable at times. Putting it another way, the stock market can be unstable and the significant reasons for that could be even more complicated. Generally, the prices of stocks in the market are affected by several different factors that have either direct or indirect influence on the stock prices. Investing in stocks, therefore, is a gamble that could either pay handsomely well or go down with your hard-earned money.
Important to note for investors in stock is that there is always a company behind every stock. Further, the performance of any company will vary in the stock market due to information about its performance.
What Events Would Occasion a Fall or Rise in the Price of Stock?
As earlier discussed, market stocks aren’t cast in stone. They depend on several factors to perform the way they do. Let’s take a look at them:
1. Exchange Rates
The stock market trades in both local and foreign currencies. Foreign currency rates directly influence the price and value of stocks in foreign countries. Moreover, any changes in the stock ratings will affect the cost of business operations in any given country. The cost will either go up or scale down, depending on the direction the stock market prices take.
There are, however, a few exceptions to when the exchange rates can influence the stock market prices. Sometimes, the exchange rate in the market is affected by the natural market forces of demand and supply.
Economics comprises so many factors that it could take a whole book to name them. However, for stock market rates, we will stick to matters such as interest rates, economic growth, unemployment, and inflation. Take, for example, the interest rates.
Stock markets get a boost when the economy grows in giant leaps. It means, therefore, that there will be increased profits if the economy expands. More profits in the economy will increase the value of the available stock. However, with decreased interest rates, the stock market rates tend to go up.
The case is different when there is high inflation. When the interest rates go down, there is always the anticipation that they may go up in the future. Equally, rising unemployment spells doom for the economy, and decreased employment means that growth is on the offing.
3. Fluctuating Inflation and Interest Rates
Once in a while, the U.S Federal Reserve adjusts the interest rates to contain surging inflation. What happens, therefore, when the interest rates go up? Nobody wants to have stocks whose value has gone down. Several investors usually sell their stock or, instead, purchase more secure bonds.
4. Financial Reports and the Publicity Around Companies
Information is very vital, not only for increasing our knowledge, but also influencing the decisions people make. It could be information about technology, economic meltdown, or new business trends. All of these could affect the current stock market.
What usually happens is that many people and organizations resort to promoting a specific industry and stock to increase the value of their shares.
Alternatively, companies carry out the promotion of their stocks by doing stock market newsletters, internet blogs, and press releases. Intensified social media campaigns, ad hype around specific companies, help build high expectations for the performance of the companies.
Regardless of whether the hype is anchored on truth or not, investors mainly consider people’s reaction to hype. However, hype building isn’t just done by any ordinary firm. The companies look for established firms that are authorities on matters stock market. An established firm will affect the movement of markets and the performance of stocks by merely projecting a certain level of growth.
5. Political Instability
Depending on where you are, government policies will always be unsatisfactory to everyone. But politics isn’t just limited to the United States. International politics could also play a vital role in determining the kind of products and development that go on in the country.
In countries where there are civil wars, the economy declines, and the stock prices ultimately shrink. Generally, the positive and negative implications on the stock market will depend on other additional different aspects. Uncertainty due to political turmoil, however, will affect stock market prices.
By Jamie Roberts