People who decided to start investing in stocks should be careful as one of the common mistakes is to invest all the money without due diligence.
It is important to have at least a general idea about the factors that may influence the stock markets. The first factor is the corporate changes. It means that potential investors should be familiar with the company. Structural changes and modifications in the business model can affect equities.
Also, part of this factor is the investor’s perception. For example, if the investors are confident regarding the company. This may happen thanks to the news connected with positive earnings as well as new products etc. In this stock, prices often go up based on investor’s perceptions.
However, if the investor is unsure about the corporation, its shares will suffer due to this factor. Uncertainty may be the result of a merger deal collapse or other issues, such as poor financial results etc.
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Now, let’s move to another factor, which is the financial state. The company’s earnings also contribute to the behavior of equities. However, the direct effects are usually confined to the company itself or sector versus the entire market.
The third and the last factor, which may influence the stocks, is connected with the impact of the earnings report.
The earnings report is important as it helps to compare a particular company against other contenders for your trading money. This step allows limiting the list of potential stocks to trade.
Moreover, the earnings report is useful to learn about the company by comparing the latest report with the previous one. For instance, if the most recent profits surpassed the past results, it means that the company is performing well.
Reasons which may affect the overall market
In the first part of the article, some of the factors we discussed why individual equities move the way they do, now let’s focus on the overall market.
There are four reasons which impact the overall market. The first one is inflation. Inflation is described as the rise in the cost of living as the price of goods and services increases. As a result, a person has to spend more money to buy food, etc.
It is possible to describe inflation as a natural occurrence. Higher inflation could affect the stock prices, while lower inflation can help to boost the stock prices.
The next factor is interest rates. It is important to note that interest rates also play a significant role in the stock market. The stock prices will go down if interest rates rise as higher rates are expected to take up more money. However, if equities will improve once interest rates are low.
Let’s discuss the next factor which relates to oil prices. A lot of industries depend on oil; consequently, oil prices can affect stock prices.
It means that by looking at the oil prices, it is possible to learn more about stock markets.
The last factor that impacts the overall market is connected with political unrest, wars, terrorist attacks, and other instability-related factors. Hopefully, if there are no such problems, equities will benefit from this situation.