Basic Causes of Market Change
Changes in the market can depend on a large number of factors. The stock market is not easy to learn and it is a tough system in which both novice and experienced investors with different budgets make different decisions, and these decisions often lead to unexpected consequences. The market is a composite image of the aspirations and goals of individual companies and people.
Although there are certainly some principles of economics that can help you make sense of market changes. With experience, knowledge, and ownership of information, you will identify specific indicators that will be markers of change for you.
Supply and Demand
Economists often say that markets strive for balance because supply will equal demand, and price movements are due to the time difference between what suppliers can provide and what buyers need. Let's break this down using the example of stocks: supply is the amount of stock that owners are willing to put on the market, and demand is the amount that people need.
Buyers may need more shares than the amount that sellers are able to provide. Thus, the price of stocks will rise naturally.
Basically, the demand for stocks will rise from how much potential the issuing company has, or from how buyers will see the future price of the stock.
So we can ask: When will there be more supply or demand?
Confidence in how profitable an investment will be is one of the key points deciding where the market will go. Of course, a buyer is more likely to buy a stock if he is certain that it will be worth more in the future. And if there is reason to believe that the stock will begin to fall in value in the near future, there will be more people willing to sell them. There are several factors that determine the confidence of potential investors and buyers:
- Wars, civil unrest
- State policies
- Changes in IT
- Inflation and deflation
- Information about various activities of companies, or states
- Natural disasters
For example, because of the COVID-19 epidemic, the biggest drop in Dow Jones Industrial stocks happened on March 16, 2020. The stock lost about 12 percent of its value. The pandemic created great uncertainty about the future and many companies were affected. So at that point, there were many more people who wanted to sell the stock than those who wanted to buy.
Interest rates also count as one of the key factors in calculating stock prices. Several reasons contribute to this. Interest rates directly affect banks, investors and businesses because their ability to borrow depends on it and that is why they affect how much money is spent in the market. Also, rising interest rates can make other types of investments that serve as alternatives to stocks (such as U.S. Treasuries) attractive.
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