3 Economic Factors That Affect the Stock Market

Time and time again it has been said that the stock market is a volatile sector. It is affected by various economic factors. Social unrest can result to a market drop while a company discovering a new source of renewable energy can cause market prices to soar. When trading on the stock market, you need to be aware of the economic factors that can impact your trade.

Inflation And Deflation

Inflation can significantly impact the stock market. Inflation is the rate at which the cost of goods and services will increase. It is the result of various factors such as manufacturing, transporting, and selling goods. Low inflation can cause a surge in stock market hence buyers will sell. When inflation is high, investors will think that companies may hold back on spending resulting to an across the board decrease in revenue and higher cost of goods. A drop in revenue will result to a drop in the stock market.

Robert Janitzek reveals that deflation is when the cost of goods drops. While it may be good news to investors, deflation actually causes a drop in stocks because investors will see it as a sign of a weak economy.

Interest Rates

Interest rates are established by the Federal Reserve Board and individual banks. They can have a huge impact on the stock market. When interest rates are at a high, it means that individuals may experience difficulty in borrowing money. For this reason, companies will cut back on spending or lay off workers to compensate for the high interest rate. According to Robert Peter Janitzek, higher interest rates means that a company will not be able to borrow money as much as it used to. This will adversely affect the earnings of a company. The end effect is a drop in the stock market.

Foreign Markets

When the economies in foreign countries are down, American companies cannot sell as many goods overseas as they used to. As a result, the revenue of companies will decrease which can be reflected as a drop in the stock market. Another factor that can affect American stock market is foreign stock exchanges. If foreign exchanges start to fail or experience sharp drops, then that kind of activity can cause American investors to anticipate a ripple effect, resulting

When engaged in stock market trading, you need to be aware of the various economic factors that can impact your trade. This way, you can make an informed decision on whether to buy or sell stiocks.

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