If you're interested in learning about some of key influences which can affect a stock's price, simply continue reading to learn what makes the stocks go up or down.
You may or may not already know this, but there are a wide number of factors which can directly impact a stock's price.
Once you learn about the factors which can influence a stock's price, you'll be able to make wiser investment decisions. Instead of making rash decisions which are based on small dips or rises in stock price.
What makes stocks go up:
Supply and demand are the primary factors which influence stock prices.
- When demand for a stock is higher than the stocks which are currently for sale, its price will increase.
- While if there are more individuals who are looking to sell their stocks than interested buyers, the stock price is likely to fall.
However, there are a wide variety of secondary factors which can greatly influence stock prices.
Some examples of which include the results of annual reports, government policies, new industry regulations, new trade regulations and analyst upgrades or downgrades. Another major factor is the overall performance of the stock market.
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What Can Affect Stock Prices?
Stock prices are a lot like the weather.
They can be hard to predict, but there are some things that you might see coming.
Some common factors that affect stock prices are:
- Changes in government regulation (which might cause uncertainty among investors)
- New laws or regulations being introduced to a company's sector which could be bad for their business model or cost them money; this can make the service offered by an organization less valuable than it once was - leading people to sell shares of its stocks at any given time when there are worries about what'll happen next.
- International relations with another country. For example, if one nation is imposing sanctions on another due to some conflict but doesn't want the other nations' citizens investing in theirs because they're worried things will escalate out of control from here, then companies based in either
It is important to remember that one of the biggest factors in a stock's price is how many shares are available on the market.
This number changes over time as people buy or sell their stocks, so it is something you should keep an eye on when considering which stocks to invest in.
If there are more buyers than sellers at any given point, then this will push up prices because demand has exceeded supply.
On the other hand, if there are more sellers than buyers for some reason (maybe they think that the company won't do well), then this will lead to lower prices because demand has decreased while supply remains unchanged.
Stock Prices can also be driven by a company's earnings report, or how much money they've made in the last year.
Generally speaking, if a company has high earnings, then investors will have more faith that it will continue to do well and so be willing to pay higher prices for the stocks.
There are many other factors that can affect stock prices too:
Anything from changes in government regulation (which might cause uncertainty among investors) all the way through international relations with another country could potentially lead people to sell their shares of a particular company's stock at any given time when there are worries about what'll happen next.
Be aware that every single factor on this list may not apply equally across different companies- some businesses operate internationally while others only work domestically; some get along with governments while others don't.
Stock Market Indicators
Stock Market Indicators are a set of indicators that measure the performance of stock markets.
Widely Accepted Stock Market Indicators include the Dow Jones Industrial Average, NASDAQ Composite Index and S&P 500 Index.
These three indices are some of the most widely accepted by investors in determining how to invest their money.
- The Dow Jones Industrial Average (DJIA) is a stock market index that measures the performance of 30 large, publicly traded companies based in America.
- The NASDAQ Composite Index is another widely accepted indicator and it tracks over 2000 stocks listed on the NASDAQ Stock Market which includes technology as well as non-technology issues. It also monitors both growth and value stocks to measure how they are performing.
- Finally, the S&P 500 Index not only does what its name says but it has different indexes for sectors including financials, health care or consumer goods among others so investors can choose what sector interests them most without losing track of broader market trends by just following one sector’s progress.
How a company's profits directly influence its stock price:
One key factor which influences a stock's price is the profits which its company generates. As usually when a company posts high profits, investor demand for its shares will increase. As healthy profits are often seen as an indicator of future success.
While inexperienced investors may only purchase stocks when they are cheap, more experienced investors will still invest in stocks at a higher price, if they believe that their profits are a sign that their share price will continue to climb in the future.
Inflation's influence on stock prices:
Another factor which can influence stock prices is inflation. Typically, the higher interest rates are or the higher the threat of rising inflation is, the more likely stock prices are to decrease. As many investors sell their shares in a panic, fearing an imminent stock market crash.
Whether inflation will have a negligible effect on the stock market or a huge effect on the stock market usually depends on the rate of inflation. As while small shifts in inflation will not have much of an impact on the stock market, drastic increases in inflation will normally have a substantial effect on the stock market.
Deflation's effect on stock prices:
Deflation can cause the prices of goods and services to decrease, which can decrease the profits which businesses are able to make.
Remember that the less profit a business makes, the more likely their stock prices are to fall. As profit is seen as an indicator of a business' potential for future success.
The effect of uncertainty on stock prices:
Pandemics, natural disasters, and wars can also have a negative impact on stock prices. As in times of uncertainty there are always more sellers than buyers.
For example, on the 16th of March 2020 the Dow Jones lost 324.89 points or roughly 12% of its value in a single day of trading. As a direct result of the uncertainty which was caused by the global Covid-19 pandemic.
If you're looking to pick up stocks from companies which you believe will be able to withstand uncertain economic periods, it's well worth purchasing them during times of economic uncertainty. If you are right and the companies which you choose to invest in make a full recovery, your stocks will increase in value.
Many investors choose to invest a large portion of their disposable incomes into blue chip stocks which offer competitive, regular dividend payments.
However, when a company's board of directors vote to decrease the dividend percentage which they pay their investors, there is a risk that their stock price will decrease as their investors may choose to sell their shares in favor of reinvesting in a stock which offers higher dividends.
Advancements in technology:
Companies which are responsible for significant advancements in technology often experience a dramatic rise in stock price.
Therefore stocks such as Tesla, Facebook, Microsoft and Apple have exceeded expectations in the past decade.
While companies which are responsible for advancements in technology or a quick to get on board with new technology flourish, companies which are slow to adapt to new technology may lose market share and may experience a decrease in stock price.
Short term and long-term effects on stock prices:
It's important to note that some influences on a share's stock price will only have a short term effect on its stock price. While other influences may have a long term impact on a company's stock price.
As an example, new industry regulations may end up having a long term effect on a stock's price while a poor annual report may only have a negative effect on a stock's price for a few months.
As the company which presented a poor annual report may make major changes to their operations to improve their company's outlook.
While new industry regulations may increase a company’s production costs for the long term.
So, if you notice that a stock's price has been influenced by a specific factor, it's important to assess whether the change in stock price is likely to be a short term change or a long term chance.
As if you believe that a stock is experiencing a temporary dip, it may be a wise idea to purchase further stocks before the stock price increases again.
While if there are signs that a stock's dip in price will be a long-term change, you may want to hold off on purchasing further stocks. In order to avoid losing money on an ill-advised investment.
In conclusion, if you are keen to invest in the stock market in order to take control of your financial future, it's important to remember all of the key factors which can significantly impact individual stock prices as well as the stock market as a whole.
Remember that while a variety of factors influence stock prices, the most influential factor to consider is the current supply and demand of any given stock.
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