The stock market and its fluctuations are the backbone of modern business. If you’re a business owner or an investor, it’s essential that you understand what can affect prices. As a business owner, you need to know what external factors could cause your share price to crash. As an investor, you need to spot and predict anything that could sink your investments! In this post, we’ll explain the factors that affect share prices, both good and bad. Some are manageable, whereas others are completely random and unpredictable! It’s what makes the stock market such a vibrant and exciting place.
Company news – As you will know, owning a share is like owning a slice of the company pie. When the company performs well, its valuation goes up, taking your share price with it. So, when the company makes a big step forward, it will bump up its valuation, and hence its share price. It could be the introduction of a new product that has been well-received. It could be the announcement of profits or future earnings, or a big new contract. All of these will boost share prices in that company. Of course, the opposite is also true. Scandal, layoffs or poor profit projections will lower share prices.
Industry sector performance. – In the stock market world, share prices tend to gather together in bubbles. Let’s take the technology sector, for example. We are right in the middle of a huge tech boom. The likes of Facebook and Twitter have performed fantastically on the stock market. It paves the way for the entire tech industry. For example, Yelp stocks have performed very well after targeting the tech sector. In terms of new offerings, Snapchat, Pinterest and Dropbox all look set to float for the first time this year. They all have the tech boom to thank for this.
Economics – The stock market is inherently ruled by money. As a result it is beholden by wider economic factors around the world. The general interest rates are set by the government and are regularly altered to encourage growth. When this happens, it has a big effect on the stock market. Inflation and deflation will have a similar effect. On a wider scale, currency rates and exchanges alter the sheer value of money. Naturally this has a knock-on effect on shares. Finally, a change in the government’s economic policy will take its toll on the market too.
World events. – Everything from natural disasters to terrorism to elections has a known effect on shares. The biggest example happened in the wake of the 9/11 attacks on the World Trade Center. The market suffered its biggest lull in some time as investors looked for less risk. More recently, the UK stock market took a big hit last week when the uncertain election result scared investors. Once the government was re-elected, stock prices boomed again. These events are unpredictable and can cause havoc on a stable market.
As you can see, there are plenty of factors affecting stock market prices. From the predictable and manageable, to the completely unexpected!