What Factors Affect Stock Market Prices?
Have you ever considered what sorts of factors contribute to changes in stock market prices? For many new investors, this is likely to be one of the first questions that they ask. Often, they are unprepared for the complexity of the answer for there are numerous factors involved in price fluctuation. In fact, there are so many that it is difficult to narrow in on one specific reason for the change; it may that it is never as simple as a single factor. Rather, stock market prices are affected by combinations of factors varying from external world events to changes in foreign currency conversion rates.
As you develop experience as an investor, it becomes increasingly important to keep many of these factors in mind since knowing the affects of these factors can make a difference between whether you succeed or fail. It is with this in mind that this article is meant to identify some of the top factors that are responsible for changes in stock market prices since there is no way to compile an exhaustive list.
Topping any list for causes of fluctuating stock market prices are changes in interest rates and inflation levels. These two factors have a tendency to go hand-in-hand depending upon other aggravating circumstances. No one likes rising inflation rates; in fact, governments like to avoid this at all costs and typically raise the interest rates in order to compensate. This is problematic for stock prices since it changes the trading preferences of investors from higher risk equities to lower risk, government-backed small lending stocks.
As stated previously, there are other factors that can either drive up or make stock market prices plummet. These include world events such as wars, political unrest, crime, fraud, as well as changes in oil and energy prices. The connections between seemingly distant or unrelated events can actually have quite a direct impact on the prices of stocks and can create lasting trends if they persist. These factors also include foreign currency rates since they have a direct impact upon the stocks in those countries. If the rate of the Euro drops, you will see changes in the prices of multiple European stocks.
A final factor worth mentioning is actually internal rather than external. It has to do with the nature of stock prices themselves, which possess an inherent liquidity. Prices, in the end, are determined by the amounts that investors are willing to spend on the stocks as well as the amount a seller is willing to accept for his stocks. It is important to have as much information as possible so you can deal with the inevitable shifts in stock market prices.
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