What Causes Changes In The Stock Market?
Stock market is ever changing and is quite complicated to understand. Basically, the main thing that brings changes in the stock market is the change in price. Often the prices of the stocks go up as well as down. There are many reasons why these prices of the stock fluctuate. Investors who are always looking for stocks to invest their money keep themselves updated. A simple change in the stock market can have a huge affect on the prices of the stocks. If you are into stock investment then you must know the things that have an impact on the stock market. Here are some of the reasons behind the changes that often you can see in the stock market.
During the time of inflation the prices of the goods rise. Inflation also makes the worth of dollar less. Due to this, the cost of car which was $ 7,000 back in 1981 is $ 17,000 in 2001. During the time of inflation, people tend to spend a less and thus the companies also do not make much money. When this happens to some companies, investors lose their interest and confidence on those companies. They start selling their stocks as it worth less and the price of those stocks are continuously going down. This happens a lot with many companies during the time of inflation. Thus the stock market face a huge change than that of the normal time as it goes through a downward shift.
#2: Interest Rates
Interest rate also has a huge impact on the changes in the stock market. In order to control the inflation, federal funds interest rates are often increased by the Federal Reserve System. This is the interest rate which banks have to pay for the loans that they take from the Federal Reserve. When bank has to pay higher interest rates they increase the interest rates of the loans they give and credit cards. This makes the customers spend less as well as the businessmen to borrow less from the banks. Thus, when the consumers stop spending and do not buy, the profit of the businesses decreases a lot. This affects the prices of the stocks directly and it decreases. Similarly, when the company profits increase, the investors tend to buy more and more stocks.
#3: Energy and Oil Prices
People need energy every time in their day to day work. Without natural gas, electricity etc people can keep themselves warm or cook food and even will not be able to use any kind of electronic appliances. Thus the demand of the energy is quite constant and high. But if there is any major change in the cost of energy then there is a significant change occurs in the stock market. Same goes for the oil or gas prices. When the prices are high, people have to pay higher price for availing the transports. Thus it affects their buying capability of other consumer goods. This directly affects the stock market and it tends to fall down as soon as the oil prices increase.
#4: Wars and Issues
International and Domestic issues like wars have a direct and negative effect on the stock market. Even issues like political unrest, crime and fraud have a negative impact on the stocks. In this situation often market prices increase and consumers tend to buy lesser products and save more. Thus it affects the businesses directly and their stocks. Investors try to sell their stocks before it the prices start falling. Thus, the war and issues, be it domestic or international, have a huge impact on the stock market.
These 4 are some of the main reasons behind the changes in the stock market. You can often see that the stock market has crashed and is going down steeply. The reason behind this downfall is often one of these above reasons. Inflation being one of the most common problems all over the world causes changes in the stock prices. The prices of the stocks often go down and up depending on the nature of the socio political and economic environment of the world. Experts can predict a lot about the upcoming changes in the stock prices by analysing a particular situation. Whenever you see any of these 4 problems in the world, you will know that it is going to have an impact on the stock market sooner or later.