Investors would like to accurately predict the stock market to exploit the available profitable economic opportunities. However, various economic trends and extraneous factors affect this perfect strategy as they indicate the success and failure of the stock market.
Regardless of this, investors should plan ahead to ensure the security of investments. The stock price can rise or fall due to:
Interest rates changes and inflation
The U.S. Federal Reserve publishes reports of interest rate adjustments and inflations. Investors tend to trade-off stocks when the interest rates go up because the associated risk is higher.
For a more predictable performance of the stock market, investors opt for government-owned securities. These securities come with higher interest rates and protect your investments.
Keeping track of the analyst ratings today will help you plan ahead with your investments for your security.
You will find instances of civil unrest, natural calamities, political instability, and similar events reported in the world news. These affect the stock market either directly or indirectly, depending on the chain of reaction.
Terrorism, for example, brings with it economic uncertainties that instill fear in investors. Investors desire less risky stocks, so unfavorable world events lead to less trading.
Unfavorable global events result in economic fluctuations that may cause depressions or booms depending on the after-effects. Economic booms pave the way for peak share prices since more investors are able to buy stock.
If the economy undergoes a recession, it’s likely to sink to a depression that takes stock prices to the lowest point. When the conditions are better, the economy will undergo a recovery that means higher share prices.
Political events directly impact the stock market as they influence marketing, financing, policing, etc. The upcoming U.S. election, for instance, has introduced various uncertainties due to the unpredictable re-election of the current president.
It’s important to note that every prospective candidate is proposing various policy changes that are likely to affect the stock market. The election of a new government into office will directly impact the imposition of taxes on various sectors. The policy changes will be favorable for some businesses while having adverse effects on others.
This uncertainty has led some investors to sell or buy certain stocks due to the expected changes in economic policies.
Demand and supply
The demand and supply of stock vary depending on the sentiments of the investors. Various companies publish information about the projections for earnings and market performance. If a company projects a dismal performance, then investors are likely to pull out their investments if they develop negative sentiments.
The demand and supply of stock also affect share pricing. If the demand for shares is higher than the supply, it means that more investors are willing and able to buy the available shares. The stock price will then increase to counter the rising demand.
A lower demand than supply leads to reduced stock prices since the buyers are less than sellers.
The management of a company directly impacts its performance; hence, the stock prices. Potential investors do a background check on the company management to assess the track record.
If the management profile is highly credible and effective at improving company performance, then more investors will be willing to buy the stock. In return, this will lead to higher share prices since the management is professional enough to meet the set financial goals.
If investors have any doubt in the management team due to issues of integrity and the like, the share prices are likely to drop. This is because the management profile will determine whether the company experiences success or failure.
The stock market is highly volatile since various factors lead to price fluctuations. As an investor, you do not expect a stable economy throughout. Although predicting the market performance is difficult due to the numerous uncertainties, a proper analysis will help you plan ahead of your investment. What you expect as an investor, your attitude, and sentiments impact the share prices.
It is, therefore, essential for a prospective investor to check for the above stock price indicators in the news as they affect the stock market. Also, consider stock ratings from reliable websites to make an informed and valuable decision.