What factors affect the stock market?

What factors affect the stock market?

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The stock market has seen a growth in popularity in recent years as dealing in stocks becomes cheaper, easier and more accessible. Many people now buy stocks as a full-time career, a way to supplement their income, or even provide for their retirement.

Whatever your reasons, you can begin to buy stocks in a few minutes by signing up to a reputable stockbroker online, you may also opt to learn how to trade options before you get started. All you need to do is:

  • Create an account
  • Make your first deposit – this can be as low as £10.
  • Choose your stock.
  • Enter the amount you wish to invest.
  • Click ‘Buy’.
  • Congratulations. You’re a stockholder.

Before investing in stocks it’s important to be aware of the risks involved. Stock markets can be volatile, and there are many factors that can influence the rise and fall of stock prices.

Research and an awareness of the factors behind these movements will help you make better informed decisions and be a more successful investor.

Internal Company Developments

You can never know exactly what is going on inside a company and while strong dividends and growing profits are a sign of a good business, internal developments can quickly alter things. 

  • Takeover: A take-over attempt by another firm can boost stock prices considerably
  • Acquisition: A business buying another company can boost its stock price, with its promise of a wider customer base, better products, new technology and potentially improved sales. However, if the market feels the acquisition is too expensive or makes no sense, the stock price will drop.
  • Personnel Leaving: A successful manager leaving the business to retire or move to a rival can adversely affect the price as investors worry the company may not perform as well with them gone.
  • Hiring Personnel: The arrival of a successful, high-level executive to take over the running of a poorly performing company can transform its stock value, as investors hope to benefit from a turnaround in the business’ fortunes.
  • Fraud: Financial irregularities in the accounts, fraud and financial mismanagement, will see a stock plummet in price when the news breaks.
  • Scandal: Malfunctioning products, poor treatment of employees and more, can all see prices effected. The recent scandal over diesel cars that engulfed VW and others, wiped millions off the value of their stock.

Inflation and Interest Rates

Increased inflation will see banks respond with higher interest rates, effectively increasing the price of money. This effects the entire stock market as demand for products drops and peoples spending power is reduced by inflation.

Investors will normally look to place their money elsewhere, such as government-backed securities, in order to take advantage of the higher interest rates and guaranteed returns.

Exchange Rates

If you hold stocks in companies that trade in foreign countries, changes in the exchange rate will impact on the cost of doing business in that country. Parts may become cheaper to buy and import, increasing profit margins, alternatively, selling their products in another country may become more expensive, effecting sales and profits.

World Events

World events can have a huge impact on stock markets, impacting investor attitudes to certain stocks. While they can often be hard to predict, a global awareness will allow investors to be better informed.

  • War: When Russia invaded Ukraine the impact on the markets was huge and its effects are still being felt. Many stocks are well below where they were before the war started. But despite this, there are always opportunities and stocks that will benefit, including some defence and technology stocks.
  • Natural Disasters: Drought, floods, hurricanes and more can all effect a company’s performance and investor attitudes. A hurricane destroying a companies delivery depot or manufacturing base would stop it fulfilling orders and lose money. While drought and floods can present opportunities to companies offering solutions to these events or hinder businesses whose operations are affected or destroyed by them.

Stock Hype

The technology boom saw a lot of stocks that had no profit, no sales, and nothing more than an idea, be valued at millions of dollars. That is what hype can do for a stock, and it will inevitably boost a stock’s price.

Rumours of a new invention, a revolutionary new product or the launch of a new iPhone, can all excite and influence investors. But stories of incredible discoveries or imminent takeovers can often come to nothing, resulting in a calamitous fall in the stock’s value.

Stay Informed

That is why it is so important for an investor to stay up to date, do their research and make decisions based on facts. Not hype, rumour and hope.

Follow other successful investors on twitter, watch the news, read the business pages, research companies you are interested in, monitor the market. That why you will make better informed investment decisions, save yourself some money, and discover great investment opportunities too.

About the author

Johnny is dedicated to providing useful information on commonly asked questions on the internet. He is thankful for your support ♥

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