In the business world, an increasing and stable economy is a bull market, while the opposite is a bear market. The stock market is at an $80 trillion estimate value and is considered volatile due to the fluctuating stock prices. For example, if you follow the stock NYSE:LUV, you can find the stock price, price target, earnings, financials, forecast, and more. It gives you the information you need to know to make informed decisions. Stock prices swing due to several factors, some of which are as follows.
Every day you wake up to new happenings around the world. Such global occurrences have a significant impact on the stock market. The emergence of the COVID-19 has affected the stock market in one way or the other. One effect brought by the pandemic to the stock market is its effect on people’s activity and mobility.
Activity and mobility provide viable information in assessing activities, such as purchases and rates of use of public amenities. Following the pandemic’s news, the demand for medical equipment such as masks, PPEs, reagents, and ventilators have gone up. The need for medical supplies directly impacts the increase in medical stock prices and the raw materials for the equipment.
When the political campaigns approach, some changes occur in the stock market. On most occasions, the politicians draw their campaign finances from wealthy individuals who significantly impact massive organizations. Therefore, politics influence the stock market, especially when multiple organizations have a share in politics.
Politics in other countries also affect the U.S markets. For instance, an unfriendly government is likely to lower the needs, while a friendly government favors the market.
Psychology in the market entirely depends on human nature. The investors’ emotions have significant instability in the prices of shares. Following the bear and bull market’s analogy, the bear market might be due to negative news, resulting in investors scrambling for markets to sell their shares. Such scenarios are often experienced at the beginning of the recession.
However, at the end of the recession period, the share market is booming. Investors with optimistic minds play the role of catalysts inspiring others to purchase shares. Such a scenario is referred to as the bull market, which results from positive news in the market.
Company and Industry Performance
Companies and industries are dynamic; therefore, significant decisions made by them have a substantial impact on the stock market. Investors depend on the announcement of changes in companies and industries to determine whether they buy or sell shares. Factors that cause the swings in the market are staff replacement, the introduction of new materials, scandals, or change in earnings.
In case such changes occur in one company, other companies in the same industry are likely to feel the impact. Such impacts include fluctuation in prices of stock.
Inflation and Deflation
Inflation and deflation are essential in the stock market. A decision was taken by a company to either engage in deflation or inflation affect the investor’s choice on whether to sell or buy. Inflation is an indicator of the rise in production cost, transportation, and other costs. In most cases, companies strive to cut down the cost to avoid inflation. Such a move makes investors sell their shares.
During deflation, the cost of production and selling stock decreases. Due to this, companies may engage in massive output while, on the other hand, it is nothing to celebrate. Investors use deflation as an indicator of a weak market.
The United States Federal Reserve determines the interest rates to control inflation rates. When the interest rates surge, the investors tend to sell their shares in the stock market and buy government-backed bonds, which harvest more interest.
On the other hand, a decrease in the interest rates translates to low market risks. Therefore, investors tend to purchase more shares since they find it an attractive way to invest. Increased purchase of shares leads to improvement in the economic sector.
Foreign currencies are subject to change in value; therefore, they can increase or decrease the cost of conducting business abroad. Exchange rates have an overall impact on the prices of stocks of companies in other countries.
The stock exchange is not stable throughout the year. Therefore, investors must be keen on emerging events and master the times that favor them.