The stock markets consist of some of the
most volatile changes and a day in the green may be a blessing while a day in
the red may be a disaster. Many have tried to figure out the combination of
factors that determine changes in stock markets but this is an extremely
difficult process. However, there are certain indicators that can be directly
held accountable for stock market volatility and some of these key factors
which may be used to understand and predict the stock market are as follows:
Economy:
The most important
role in influencing the stock market is the nature of the economy. A strong
economy is indicative of a good and growing stock market system and vice versa.
With more savings, people look to invest more and this helps companies raise
more capital in the markets leading to greater demand.
Global Events:
Global events such
a change in the political structure, natural disasters or outbreak of war can
significant effect on the stock markets.
With more trade, opening of the economy or shift in trade policies, the
stock market may be affected by such an event.
Company scandals and news:
The stock market
tends to surge when a company announces new projects or the success of old ones
and declares a great dividend to its shareholders. On the other hand, if the
company is under controversy or has poor returns, then its stock prices are
also likely to fall. Therefore, the position of the company as well as the
information coming from it has a major influence on the stock market.
Speculation:
Since the stock
market is essentially something that is dependent on speculation, the kind of
people investing in the stock market also affects its nature. If investors are
risk takers then the stock market faces high volatility and swings whereas if
investors are risk averse, the stocks generally remain stable.
Interest Rates:
If Banks increase rates,
then there is a lack of money in the economy as a whole as fewer people want to
take money on loans. Since there is a limit on the amount of cash flow in the economy,
less people are willing to invest and this leads to a negative sentiment in the
market. On the other hand, if banks decrease rates, more people will borrow and
consequently invest.
This is only a small fraction of the
various factors, both economic and socio-economic that can affect the way a
stock market behaves. While it is extremely difficult to forecast how a stock
market will react to any sort of changes in this balance, it may be said that a
combination of these in addition to certain other stimuli have a definite
impact on how the stock market functions. Investors generally look at these
factors as well as the performances of the company in the past in order to
determine whether or not an investment will give them a positive return and how
to best use their resources to get the most out of their stocks.
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