5 Factors That Influence the Stock Market – Explained

While the success of a trader relies mostly on their abilities to anticipate market changes and act upon them, the stock market is known for being fairly volatile. For tens of years now, experts have been trying to isolate and analyze the factors that are most likely to affect the movement of prices, as well as the stock market in general. Those factors can vary from economics, governmental changes, and even natural disasters. 

In general, those factors don’t influence the market per se, but actually, the companies that issue shares on the market. The September 11 events, that took the US by storm in 2001, for example, caused investors to trade much less and shift their direction towards less-risky stocks. 

With this being said, below is a list of five of the most important factors that can move prices up or down the grid.  

Economic factors

It is obvious that, for companies in countries with high economic growth, company dividends have a more chance to increase, which influences share prices. At the same time, if there is an industry growth of some sort, it will influence most, if not all, of the companies in the said industry. 

Inflation and deflation are other economic factors that are highly influencing the stock market. With inflation, consumer price grows, which means profits will decrease for companies, as sales are being affected. Inflation is highly linked to increased interest rates as well, which also hurts stock prices. On the other hand, inflation may boost commodities, which will make their prices rise. 

With deflation, even though company profits will decrease, with will lower stock prices and determine investors to sell their shares and turn towards more stable investments, such as bonds. At the same time, this is the moment where interest rates may be lowered, to determine people to borrow more. 

Political factors

Political factors can highly influence the economic activity of a country or region, and affect terribly the profit companies make. These political factors can include a change of government, new laws, or even an attack on the government.

Such changes in countries that have a high economic and political influence over the rest of the world, can affect not only the market in said countries but foreign markets as well. This has to do with the fact that countries develop partnerships, and when a country, that has a strong partnership with another country, experiences a change in government, those partnerships may suffer. This will drag markets down. At the same time, the election of a different government, that may be open to partnerships, can boost markets when new partnerships are being developed. According to common belief, financial markets will register a decline especially in the first year following a presidential election, and a good example can be .