What Make Stock Market Rise and Fall

Understanding What Moves the Stock Market
Keep You Aware of Possible Signal Changes.
Stock market is driven by investors’ sentiment.

For that reason, rather than understanding what moves the stock market, it is more relevant to know what affect the investors’ psychology.

It works much easier as you only need to understand yourself than the whole system.

Inflation or known as Consumer Price Index (CPI) is the most widely quoted as an economic indicator. Because there is inflation, the same groceries we bought last year won’t be the same as today. And unfortunately, inflation is inevitable.

As manufacturers, suppliers and service providers are constantly push for profits, price for goods escalate. When things get expensive, the consumers are then forced to accept the price. Left with limited options, consumer had no choice but to buy the thing at a higher price.

When consumers are unable to cope with the price hike, they’ll start saving and being thrifty. This is the time when less sales made by the companies as demand gets lower. With ever increasing cost, lower sales means less earnings. In the end of the day, investors will reflect their pessimism in the stock prices. Usually, stock indices plummet from major sell down.

Federal Reserve Board is the one that is responsible on the interest rate changes. The Federal Funds rate is the benchmark overnight lending rate targeted by the Federal Reserve. When interest rate increases by 25 basis point for example, lending cost will also increase. To company, less profit can be made. But, why Federal Reserve want high interest rate?

To maintain economy at a healthy level, Federal Reserve have to ensure inflation rate is maangeable. To most analyst, 1.0-2.0 per cent inflation rate considered as acceptable. If the inflation rate increases, its currency value might drop. To preserve its currency value, Federal Reserve have to increase the interest rate to curb inflation and in the same time as much as possible not to hurt the overall economy.

And normally, once Federal Reserve announce increase in an overnight lending by few basis points, stock prices stumble but its currency increases.

Most stocks will increase in value either if the earnings reported experience growth than the previous year performance, or its reported earnings beat the market forecast. Nevertheless, some just not behave the same way.

It just happen that some stocks stumbled eventhough its earnings grow. This especially true if the stock is overvalued before and most are just waiting on good news to sell them. This can also happen if its earnings can’t match analyst forecast or other shareholders expectation.

Why High oil prices will definitely affect stock investment decision. Even so, in todays oil surge, it is better for you to study how high oil prices affect your stock performance. It is believed that 15 to 45 per cent oil surge results from traders speculation rather than the actual demand.

This has very much to do with the middle east geopolitical conflicts. With terrorist threat are all over the world, explosion is enough to trigger instability. When instability create uncertainties, most stock investors prefer to quit the stock markets and keep away from it, untill they are very sure the uncertainties are certain.

There are more than just the above factors.
For examples, when competition increases, swindle in the management happens or its CEO has given up his job. Its stock will be reflected with regards to the occasion. It is you who decide what to do when what things happen.

And because human are as greedy and as anxious when it comes to money, managing emotional factor is no more an option.

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