Stocks are priced in the marketplace, in the setting where supply meets demand. But have you ever thought about the forces that drive the market itself?
What factors cause the stock market and consequently the stock prices to rise and fall?
The answer is that there are a number of different factors, which include the following:
1. Industry Performance
If the stock prices of two companies operating in the same industry rise and fall simultaneously, it’s because the market events have an equal impact on all companies in that industry.
Sometimes, however, a company’s stock prices may benefit if some sort of bad news about its competitor is circulating the market.
2. Investor Sentiment
Investor sentiment is one of the most important factors that can either cause the prices to go spike or fall. “Bull market” is a term that refers to a strong stock market; this is a setting where the prices grow and so does the investor confidence. Bull market is connected to an economic boom.
Moreover, bear market is essentially a weak stock market where falling prices are linked with decreasing investor confidence. This situation mostly arises during an economic recession.
3. Interest Rates
According to a country’s monetary policy, if the central bank raises or lowers interest rates, this can affect growing businesses. If a company has taken out a loan for expansion, it’ll have to pay more in interest, and as a result, its stock prices may drop.
4. Inflation
Inflation is defined as the sustained increase in the prices of goods and services. Higher consumer prices in the economy mean fewer profits along with a reduced number of sales. Moreover, interest rates might be raised to reduce inflation. The bottom line is that all such changes in the economy can lower stock prices.
5. Political Shocks
Economic and political shocks, such as an act of terrorism or an increase in energy costs, can have a significant impact on stock prices. For instance, higher energy prices lead to lower sales, which in turn reduce profits and stock prices.
6. Economic Policy
A newly established government can decide to make new policies, which may mean significant changes in the levels of inflation and consequently, the stock prices.
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They offer a wide range of stock market trading courses to help clients learn the basics of how to trade stocks profitably.
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