7 Things That Affect The Movement of the Stock Market | edtechreader

The stock market is one of the most important markets in the financial world. Aside from being a company’s primary source of funds, many businesses today use stocks as an investment. Not only companies invest in stocks, but also ordinary people like us.

Many financial advisors and professionals recommend investing in stocks. The stock market has proven its financial gains since the birth of the New York Stock Exchange. You’ll likely profit from your initial investment if you invest in a market with high-performing indices. But before you invest in a company’s stocks, you must first understand your risk appetite and the industry’s performance. 

There are three types of risk appetites used to categorise investors. Conservative risk appetite refers to people who are careful with their finances. Moderate, on the other hand, refers to people comfortable with risks but are still cautious with them. Lastly, an aggressive risk appetite refers to people willing to invest their money in volatile markets.

The thing is, you should not only rely on your risk appetite when investing in stocks. You must also understand the factors that affect the volatility of the market. In this post, let’s look at seven things that affect the movement of the stock market.

1 – Company’s performance

First, let’s start with the company’s performance. Since you’ll acquire stock from a specific company, your stock’s performance will depend on them. If a company has been releasing new products and the demand goes well, expect its stock prices to increase. 

On the other hand, if a company hasn’t been progressing and market performance has been declining, its stock rates will likely go down. You must choose a company with ‌proven performance when buying stock. If you were to invest in a start-up company, make sure it has the potential to offer something that the market would demand. 

2 – Market demand 

This second factor is similar and related to the previous point I discussed. I mentioned earlier that if a company performs well, its demand will likely increase. In short, if a company continues to operate and its target market’s demands are increasing, its stock prices will likely perform well.

The thing is, customer demand could vary depending on the necessity of the product or service that a company is providing. For example, if you want a low-risk stock that guarantees to maintain your investment, it’s best to invest in businesses that people will always need, like healthcare. On the other hand, if you are eager to risk your capital to earn a massive profit, it’s best to invest in high-volatility businesses, like technology companies. 

3 – Inflation

Inflation is another factor that affects the movement of the stock market. Inflation refers to the increase in the prices or the cost of living in a country. By now, you can tell that the factors affecting the movement of stocks are interrelated. Why? Because if a country goes through inflation, its consumer demands would likely change.

People say there are two permanent things in life: death and taxes. But for me, including inflation on the list makes perfect sense. After all, the prices of consumer goods in the market only go up as time passes. In fact, during inflation, the market is at its highest volatility. It is also the time when the markets’ uncertainty is high. In most cases, stock prices tend to fall during inflation. 

4 – Investors’ stock acquisition or buying decisions

Another factor that affects the movement of stocks is their investors’ buying decisions. I mentioned earlier that every investor has a risk appetite. When you buy stocks, you also decide based on how much you’re willing to shell out and lose. 

If there are only conservative investors for a company’s stock, its market performance will likely be stagnant. On the other hand, if many investors are aggressive in buying their shares, a company’s stock value increases and becomes more expensive. Not only does a company need to perform well and appeal to its target market, but also they must convince investors that buying their shares is worthwhile. 

5 – Currency exchange rates

By now, you can tell that financial transactions affect the stock market the most. And currency exchange rates are no exception to that. You might wonder, how? Because currency exchange rates affect the pricing of companies’ stocks that operate internationally.

If you look at this factor closely, you’ll see that another country’s economic condition affects the currency rates. The currency rates then affect the movement of the stocks of companies operating internationally. As a result, stock rates in different countries differ because of the exchange rates. Indeed, a country’s financial performance affects the stock market.

6 – Natural calamities and pandemics

During the pandemic, the stock market’s performance has declined. Since consumer demand has decreased significantly, many businesses have closed and started losing profit. The same goes for when a natural calamity hits a country.

Natural calamities and pandemics don’t only affect a company’s performance, but they also change consumers’ ability to spend money. As a result, the market takes the hit of these changes.

7 – Latest happenings and news in a country

Last but not least is the latest happenings and news in a country. I mentioned earlier that almost every transaction happening in a country could affect the stock market. The same goes when a piece of news happens in it, especially political ones. 

When an unforeseen event happens in a country, it could affect its business relations with local and international companies. On top of that, political relations between countries could alter business decisions, hence, affecting stock performance. If you look at how businesses operate, you’ll see that politics is everywhere and influences their operations. 

Every factor is relative to the other.

If you look closely, you’ll see that every factor that affects the movement of the stock market is relative to the other. As we can see, these factors only prove how significant stocks are to businesses and individuals. Hopefully, these factors will give you sufficient insight into which type of stock to invest in that works best with your risk appetite. 

About the author:

Bianca Banda is a writer for FP Markets, one of the best-regulated Global forex brokers with over 40 global industry awards—and counting, making them the trusted trading broker by many. 

Bianca Banda

By Bianca Banda

Bianca Banda is an ardent writer, aiming to share helpful information and ideas effectively and engagingly.

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