The stock market is a complex, interrelated system composed of large and small investors making uncoordinated decisions about a huge variety of investments. The market could be construed as an ecosystem organized by an invisible hand. Each market participant acts and plays freely based on their individual ideas and following their own personal interests. "The market" is shorthand for the collective values of individuals and companies.
There are basic economic principles that can help explain up and down market movements, and with experience and data, there are more specific indicators that market experts have identified as being significant.
Key Takeaways
"The market" is not a monolithic entity but a complex system of individual, professional, and institutional investors, each making decisions based on their own views and interests.
The law of supply and demand holds true as in any market.
Some factors, such as the rate of inflation, have the power to move the market as a whole higher or lower.
Other factors, such as corporate earnings, may move a single company or an industry sector.
In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding.
This is why economists say that markets tend towards equilibrium, in which supply equals demand. This is how it works with stocks, too. Supply is the number of shares people want to sell, and demand is the number of shares people want to purchase.
If there isa greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to sell more. If there are more sellers than buyers, prices go down until they reach a level that entices buyers.
Individually, security instruments like stocks and bonds are dependent on the performance of the issuing entity (business or government) and the likelihood that the entity will be valued more highly in the future (stocks) or be able to repay its debts (bonds).
Widely Accepted Market Indicators
This begs another question: What creates more buyers or more sellers?
Confidence in the stability of future investments plays a significant role in whether markets go up or down. Investors are more likely to purchase stocks if they are convinced their shares will increase in value in the future. If, however, there is a reason to believe that shares will perform poorly, there will be more investors looking to sell than to buy.
Events that affect investor confidence include:
The publication of economic indicators such as the Consumer Confidence Index
Changes in the level of trust placed in an industry such as the financial sector
Changes in the level of trust placed on the legal system
The largest single-day decrease in the history of the Nasdaq Composite Index took place on March 16, 2020. The market "lost" (traded down) 970.28 points, over 12% of its value. This move is attributed to the COVID-19 pandemic, which created a lot of uncertainty about the future. Therefore, the market had many more sellers than buyers.
Interest rates also may play a role in the valuation of any stock or bond. There are several reasons for this, and there is some debate about which is most important. First, interest rates affect how much investors, banks, businesses, and governments are willing to borrow, therefore affecting how much money is spent in the economy. Secondly, rising interest rates make certain "safer" investments (notably U.S. Treasuries) a more attractive alternative to stocks.
Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circ*mstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future performance. Investing involves risk, including the possible loss of principal.
The law of supply and demand holds true as in any market. Some factors, such as the rate of inflation, have the power to move the market as a whole higher or lower. Other factors, such as corporate earnings, may move a single company or an industry sector.
If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. Understanding supply and demand is easy.
Short-run economic growth is likely to fluctuate up and down in what is known as the economic cycle. Short-run economic growth is caused by increases in AD and increases in SRAS. Some things that cause short-run economic growth to happen: increase in spending, injections, decreases in production costs.
Why does the stock market fluctuate? Share prices generally go up and down because of supply and demand. However, they're also influenced by these factors: Information: When trading in shares, buyers and sellers check the latest news on a company or an industry.
A market collapse can occur for several causes, such as poor economic news, other terrible news such as war or a terrorist attack, or simply a general perception that the economy is overinflated.
Among the more prominent causes were the period of rampant speculation (those who had bought stocks on margin not only lost the value of their investment, they also owed money to the entities that had granted the loans for the stock purchases), tightening of credit by the Federal Reserve (in August 1929 the discount ...
There were many causes of the 1929 stock market crash, some of which included overinflated shares, growing bank loans, agricultural overproduction, panic selling, stocks purchased on margin, higher interest rates, and a negative media industry.
Economic growth often is driven by consumer spending and business investment. Tax cuts and rebates are used to return money to consumers and boost spending.
Economic growth is an increase in the production of goods and services in an economy. Increases in capital goods, labor force, technology, and human capital can all contribute to economic growth.
More jobs and higher wages increase household incomes and lead to a rise in consumer spending, further increasing aggregate demand and the scope for firms to increase the prices of their goods and services. When this happens across a large number of businesses and sectors, this leads to an increase in inflation.
Companies work with investment bankers to set a primary market price when a company goes public. The price is set based on valuation and demand from institutional investors.
Candle or candlesticks are a great visual representation of the fluctuations in the price of a stock. Traders use this to identify trends and estimate the direction the stock price can take in the near term. These are highly popular among traders and investors as they pack a lot of information in them.
No one, including the company that issued the stock, pockets the money from your declining stock price. The money reflected by changes in stock prices isn't tallied and given to some investor. The changes in price are simply an independent by-product of supply and demand and corresponding investor transactions.
A moving average indicator is widely used by traders to identify an up-trend, down-trend, upward momentum, and downward momentum. It is also used to identify support and resistance levels.
On a typical day, the value of shares of stock doesn't move much. You'll usually see prices go up and down by a percentage point or two, with occasional larger swings. But sometimes, events can occur that cause shares to rise or fall sharply.
Address: Suite 369 9754 Roberts Pines, West Benitaburgh, NM 69180-7958
Phone: +522993866487
Job: Sales Executive
Hobby: Worldbuilding, Shopping, Quilting, Cooking, Homebrewing, Leather crafting, Pet
Introduction: My name is Golda Nolan II, I am a thoughtful, clever, cute, jolly, brave, powerful, splendid person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
:max_bytes(150000):strip_icc()/what-are-key-factors-cause-market-go-and-down_round2-ad8487b424d04f71b444ecc9192bc9fa.png "Factors That Cause the Market to Go Up and Down (1)")
