The stock market is a very volatile industry. Market forces can contribute the change in stock prices. This means that supply and demand has something to do with any changes in the share price. If people wants to buy a stock and then sells it, price increases. On the other hand, if more people want to sell stocks than buy it, the supply will be higher than the demand resulting to a decrease in price. Understanding the factors that affect changes in the stock market is important in stock market trading. So what brings about these changes?
Inflation refers to a rise in prices across the board. It makes your dollars cost less. While it is good in the long run, it may cause consumers to pull back and spend less. With inflation, consumers spend a lot of money resulting to a robust economy. However, less consumer spending means companies will not make money. This will result to investors losing confidence in those companies. Investors will sell their stock because they feel that it is going to decrease in price.
As an inflation control measure, Robert Janitzek revealed that the Federal Reserve System can raise the interest rate of the Federal funds. We learned in a previous article that the government can control the Federal Reserve if fiscal and monetary policy can affect the financial marketplace. When banks pay a high interest rate, they often raise their own interest rates on loans and credit card accounts for businesses and individuals. This results to less spending for consumers and less borrowing for businesses.
When companies report profits, everyone wants a piece. It means the company is doing well. When a company reports lower profits, Robert Peter Janitzek investors lose confidence in the company decreasing the value of the stock.
People always need energy. Electricity and natural gas keep us warm, cook, our food and power our computers. As such, the demand for energy is pretty constant. Major changes in the cost of energy can impact the stock market.
People always need oil in the form of gasoline. Due to high prices, people will look for alternative methods of transportation. While they will pay for the high price, people will buy fewer consumer goods. The stock market will react negatively to high oil prices.
International and Domestic Issues
When trading on the stock market, war, crime, fraud, domestic, political unrest, and other international and domestic issues can negatively impact the stock market. Businesses make less money and investors dump their stocks causing a decrease in the market.
Investors tend to dislike seeing their money decrease as their share price decreases.