The stock market can be as complicated as it is volatile, and the reasons that stocks rise and fall can be difficult to pinpoint. There is very rarely one single occurrence or reason that makes a stock fluctuate, and oftentimes it is a combination of seen and unseen, direct and indirect forces that influence the price of a stock. The following are five of the top factors that affect the stock market and taking these factors into account is key to investing wisely.
Inner Workings of a Company
The internal developments that occur within individual companies are one of the best indicators of how individual stocks will perform. Whether a company is undergoing a merger or acquisition, the suspension or commencement of dividends, producing innovative or new products, or hiring/firing important executives, these types of events can predict how a stock will perform both in the short and long term. Sometimes these events are expected and sometimes they are not. It is easier to plan and to purchase or sell stocks withe expected events, but the unexpected developments can make the stock prices change more drastically.
Advertising Hype and Reports
When new products or services are about to be released or a new company is hitting the market, there is always hype and advertising surrounding the release. If a company has a good communications department, the way this build up is handled can have either a positive or negative effect on the price of the company’s stock.
World Events
Many companies are affected either directly or indirectly by world events such as war, civil unrest, or natural disasters. If a company has manufacturing plants or call centers in another part of the world, their bottom line can be directly affected. It is more likely that supply chain issues or reliance on imports from other countries, which are less direct, will be the things that affect a stock.
Global Economy
As the world continues to shrink from a business perspective, global economies play a much bigger role in the stock market. Exchange rates and global stocks in particular can help decide whether or not a company is going to be more or less successful. Short term effects include news stories or natural disasters while more lasting effects are the supply change and fundamental market forces.
The Federal Reserve
The Federal Reserve, just like the government in general, does not make quick or rash moves. The Federal Reserve raises or lowers interest rates based on inflation and these movements are usually easy to read and it is usually obvious what type of effect they will have on the economy and therefore the stock market.
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