Factors that Affect the Stock Market

Author: James Clark

Factors that Influence the Stock Market’s Performance

Stock market volatility is inevitable. Share prices will move up and down due to several factors that influence the market as a whole. As a stock trader, learning how to read, analyze, and anticipate the stock market behavior is crucial. However, before you can do that, you need to dive deeper into understanding the factors that affect the stock market.

Read on to learn more!

8 Factors That Affect the Stock Market

With so many macroeconomic and microeconomic factors influencing the market, it’s difficult to navigate such a complex, interrelated system filled with investors making uncoordinated decisions. However, traders generally use some underlying factors that affect the stock market and break them down further.

These include:

1. Supply and Demand

Supply and demand are the most basic factors that affect the stock market. Think about it; if a product is selling well then everyone wants to buy a share in the company producing it. As a result, there will be a shortage of shares, leading to higher prices. Similarly, no one would risk buying shares in a company that produced a flopped product. In this case, demand drops, and so do share prices.

All commodities have something in common – an imbalance between supply and demand which affects the price of the stock.

2. Economic Growth

Higher economic growth leads to higher demand for goods and services. As a result, companies selling goods and services are profitable, and so are traders investing in their stocks. Similarly, poor economic growth with high unemployment and development means fewer people will be looking to buy goods and services from companies in general.

3. Natural Calamities

Disasters like earthquakes, snowstorms, and hurricanes drastically affect stock prices of companies that suffer from property destruction and disruption in supply and demand. Think of the impact on companies that weren’t able to adapt to remote work or operations during COVID-19 and lockdowns.
For example, movie theatres were forced to shut down, leading to a reduction in stock prices, whereas streaming services are booming.

4. Interest Rates

The lower the interest rates, the more attractive a stock generally is for traders. This will improve economic growth leading to more buyers in the market. As a result, companies are more profitable and their share prices increase.

5. Company Factors

Internal company events and happenings influence the stock market behavior. For instance, Zoom Meetings saw a sales boom during the pandemic, leading to an increase in its stock price. Any company that is on the rise with increased revenue, reduced debt, and successful products is bound to see an increase in its stock price.

6. Market Sentiment

Market sentiment determines how investors are behaving in the stock market. For instance, if they are taking more risks and investing aggressively, prices will shoot up. The reverse of this situation is also true.

7. Hype and Speculation

Hype and speculation are also important factors that affect the stock market. Most traders follow social media, news, and business events. Moreover, the actions of companies or individuals can also affect the stock market. For example, Elon Musk invested in $1.5 billion worth of Bitcoins. Since then, Bitcoin prices have increased, and its volatility has decreased.

Bottom Line

There are certainly more factors that affect the stock market. We have only highlighted the seven we believe are most impactful. If you’re planning to improve your stock trading skills, you can start by checking how these factors apply to the stocks you’re targeting.
