Marcus Richards
It is no stretch to affirm that everyone has numerous goals to achieve. Because of this, we take important steps that are required to attain these set goals. Appropriate financial planning is beneficial to reach these dreams. When it comes to financial planning, an important consideration is an investment. To prepare well for inflation and other adverse economic conditions, it is not uncommon to invest money in different financial elements with the hope of growing gradual
Various aspects of investments include real estate, public provident funds, mutual fund investments, and more. It is worth noting that low-risk investments are characterized by low returns. While there are no guarantees for desired returns, certain strategies are adopted for low-risk investments to boost the odds of getting positive returns, irrespective of how low the yields can be.
A lot has been said about how interest rates impact stock markets. Yet, if you are interested in taking risks with your investment, then there are various factors that affect the stock market, which you must know about. This guide will explain more about this.
The Stock Market: What Is It?
The stock market is a platform where investors can purchase and sell all forms of financial instruments, including bonds and shares. There are many stock market exchanges that allow investors to buy or sell stocks on the internet. A share is a portion of a company’s worth that is sold out to raise funds for the progress of the company.
For instance, when an organization starts, the founder is the sole owner of the company. However, if they wish to raise more money to facilitate the progress of the organization, then an option is to make their company public. This implies that the company is available to the public and individuals can buy shares in the company to become part of the owners of the company.
Factors Affecting The Stock Market
The stock market is influenced by many factors. However, the most important ones are explained in this section:
Interest rates
When the economy is too strong and inflation threatens to increase the prices of commodities, the government increases interest rates. What this means is that the cost of borrowing becomes higher. This ensures that companies become more reluctant to borrow money to facilitate their progress since they must pay more for loans. As a result, they experience lesser profits.
The consequence of this is that the stock prices will fall. On the other hand, when the economy moves too slowly, the interest rate is increased to increase the spending power of consumers. Companies are more encouraged to borrow at reduced costs, resulting in a higher profit. As a result, the cost price goes up.
Supply and demand
While many factors can affect the stock market, arguably none can impact it the way supply and demand can. Basic economics affirms that there is always a fall or rise in the price of commodities whenever there is an imbalance in supply and demand. Stock prices are no different.
If a company is enjoying significant progress, then everyone will want to be part of the company’s progress by purchasing their shares. After all, such a company represents a good investment. Then, as the demand rises and a shortage of shares arises, the price of the company’s shares will definitely move up.
On the other hand, when a company is going through a difficult period (for instance, a scandal), investors might start pulling out to sever any form of association with such a company. Then, shares will be available in excess, reducing the price in the process.
Current events
The stock market can suffer in the wake of war or political turmoil. For example, the start of the Russia-Ukraine war impacted the global stock indices. Yet, this effect only became more pronounced after Russia invaded Ukraine. As a result, this event has impacted the market’s volatility as investors have started growing doubtful during such an uncertain period.
Conclusion
Investing in the stock market is never a bad idea. However, you should equip yourself with the necessary information that can boost your chances of succeeding. This includes learning about the various factors that can affect the stock market.
