Many beginning investors are confused why Stocks are continuously changing. Well, stock markets are highly volatile, and there are numerous factors that contribute to the volatility of the market. There is no definitive answer, but the factors can help us understand why prices change so much.
Demand And Supply
- Just like any other market, the stock market is driven by demand and supply. Optimistic investors buy stocks, while pessimistic investors sell stocks.
- If more investors are optimistic about the stock, and the stock market in general, then the price of the stock market goes up. The opposite is true as well.
- Bull Market: When investors are positive about the economy, they invest in their favourite stocks. This leads to an overall increase in the market, and economy as well.
- Bear Market: This market is the opposite of a bull market. Here, investors are uncertain about the future, and the economic growth. Hence, they start selling stocks, leading to a decrease in the stock market. An example of this was during the pandemic season.
Company News
- Shares are just company ownership after all. Hence, company news can drastically affect the price of a share. Here are some common things that can change the price of a stock
- Announcements on financial performance, like quarterly reports, etc.
- Dividends, right, bonus issues
- New product decisions
- A collaboration with another firm, or a takeover
- Change in management, like a new CEO
- New divisions in the company
Industry News
- Industry news can have a huge impact on the price of a stock. Let us take a small example. If the government wants to build more roads, what do they need? Steel! And lots of it. Because of this, steel companies are going to get a lot of business, increasing their profits. Since the steel industry is needed by the government, the stock prices of all the companies will go up as well. Investors will be positive about the growth of the steel industry, and in turn, will invest in these companies
Economic Factors
- Industries are made up of many companies, and the economy is made up of many industries. If the economy changes, the industries will respond to these changes. There are many economic changes that affect the prices of shares.
- Inflation: If the prices of consumer goods increase and consumer income remain the same, then consumer spending will decrease. This means that companies will get fewer sales, and fewer people will buy stocks. This makes the market go down.
- GDP: GDP stands for gross domestic product. It basically measures how many goods and services the country produces. The higher, the stronger the economy. If the economy is doing well, more investors invest in the stock market, raising the market.
- Geo-political changes: If the economy is hit with natural disasters, the ability to produce goods decreases and company sales and profits drop. Then, consumers will not invest in the market anymore.
- Other political changes can be wars, recessions, elections, laws, etc.
