Let’s face it. The stock market is an incredible platform, where investors can make some amazing rewards. However, it is also a place where volatility and extreme unpredictability often go hand in hand. Shares can go up or go down, and sometimes, there is no explanation for the market’s wild fluctuations. Our expert investors are sharing key factors to look for that can affect the stock market so that you can decide on the best time to buy or sell.
1. Global Events
One only needs to look at the headlines around the world to see how the stock market can be impacted. For instance, news about political turmoil, civil war or riots, or terrorist attacks often sends stock shares plummeting.
At the moment, investors are weighing the intensified Russian attacks on Ukraine and an onslaught of new sanctions by the West. Stocks have been flat while oil has jumped to an 8-year high.
2. Supply And Demand
Availability and desire for a product or supply and demand play a major role in stock market volatility.
It’s simple to understand: low availability and high demand increase the price of an item while high availability and low demand reduce its price.
Let’s paint a scenario. If there’s a sudden scarcity of avocadoes, and more and more people are lining up to buy them, the price of avocadoes will immediately rise.
It works the same way for the market. If a company is doing well, and everyone wants to buy shares of the same company, there will be a shortage of shares. This, in turn, will result in the soaring stock price of the company.
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3. Economic Data
Here is another important category that will affect the stock market, and it’s known as economic data. This information tells you how the economy is faring, and if the economy is faring better than expectations, it creates more demand for stocks in anticipation of better earnings.
4. Interest Rates
This factor also plays into the game, and when interest rates are increased, there is a tendency that leads to a decreased demand for stocks as the risk-free rate of return rises.
As a rule, rates tend to start increasing when the economy is improving, which boosts demand for stocks. So one could say that economic data and interest rates moderate each other.
5. Political Climate
Financial markets are buoyant but not immune to big events happening globally.
If the government appears weak or there is a risk of war, the price of stocks can drop significantly.
On the other hand, if the government has strong public support and appears to be doing well, then, the price of shares will stay healthy.
One example is this one: When the United Kingdom voted to leave the European Union, otherwise known as Brexit, the markets took a hit. However, global markets recovered within a couple of weeks and bounced back.
6. Natural Disasters
Earthquakes, hurricanes, floods, and tornadoes can all have an impact on the stock market. Destruction of property is just one area that can be affected and send stock prices nosediving.
Natural disasters can result in dramatic losses for companies, and that can lead to falling stock prices. Company sales can also be affected by a breakdown of manufacturing and the transportation of goods.
7. Investor Sentiment
The investor’s behavior can also influence how the stock market reacts. During a bull market, they are willing to take more risks and play with their money in a more aggressive manner. Confident investing means that demand goes up, and this leads to increased stock prices.
When there’s a bear market, the investor is more worried about losing their money and feels less confident. They will invest with safety in mind, and a stagnant market means that the stock price eventually comes down.
The stock market is a wonderful platform for reaping outstanding rewards, but investors need to educate themselves because several factors will always be there to affect the market.
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