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Trading Stocks
Learn about: The Stock Market, Trading Online, Ira Online, Trading Stocks Online...
From Ken Little,
Why the Stock Market Rises and Falls
What moves the stock market?
That complex question has many answers. Some market movers are obvious, while others creep up on us unseen. In this and
subsequent articles, I’ll look at some of the economic, political, and societal issues that may cause the market to change direction
or speed up or slow down its momentum.
Why the Stock Market Rises and Falls
What moves the stock market?
That complex question has many answers. Some market movers are obvious, while others creep up on us unseen. In this and
subsequent articles, I’ll look at some of the economic, political, and societal issues that may cause the market to change direction
or speed up or slow down its momentum.
A quick list of the obvious includes:
Inflation
Interest rates
Earnings
Oil/Energy Prices
War/terrorism
Crime/fraud
Serious domestic political unrest
As you can see, many of these have serious long-term implications, while others may only cause
temporary disruptions.
However, the one factor not listed above that drives the market absolutely crazy is uncertainty. The
market cannot stand surprises and when there is the chance that something may change, it rattles
the market.
There is a theory that our stock markets are “efficient,” meaning that everyone has access to the
same information at the same time. Of course, this is not true, but in a broad sense, the market
taken as a whole expects to know about events and news in time to absorb them.
For example, if the Federal Reserve Board’s Open Market Committee (the Fed) expects to raise
interest rates by one-quarter percent at its next meeting, the market will absorb and factor that rate
increase into prices before the committee meets. If the committee follows through as expected,
there is usually little or no market response. However, if the Fed raises interest rates by one-half
percentage point instead, the market will probably react abruptly.
Surprising economic news, war or terrorism, and other unexpected events disturb the markets
sense of control and often send it in a tailspin. Of course, really good news can cause a big bump in
prices, but it seems like these days it’s bad news that captures most of the headlines.
What Does this Mean to You?
For most investors, these market bumps are just that – temporary bumps that soon smooth out.
However, you need to be aware of the factors that move the market, since they can create
opportunities as well as problems.
If you have had you eye on a stock, but felt it was a little over-priced, one of these market events
might just take enough wind out of its price to put it in your buy range.
On the other hand, if you need to sell, watch for earnings reports, Fed meetings, and other
predictable events that might shave some points off your stock.
Suggested Reading:
Basic Stock Information to Get You Started
When and How to Sell a Winning Stock
What moves the stock market?
The Cheapest Stock Around
Learning the Stock Market
Inflation
Interest rates
Earnings
Oil/Energy Prices
War/terrorism
Crime/fraud
Serious domestic political unrest
As you can see, many of these have serious long-term implications, while others may only cause
temporary disruptions.
However, the one factor not listed above that drives the market absolutely crazy is uncertainty. The
market cannot stand surprises and when there is the chance that something may change, it rattles
the market.
There is a theory that our stock markets are “efficient,” meaning that everyone has access to the
same information at the same time. Of course, this is not true, but in a broad sense, the market
taken as a whole expects to know about events and news in time to absorb them.
For example, if the Federal Reserve Board’s Open Market Committee (the Fed) expects to raise
interest rates by one-quarter percent at its next meeting, the market will absorb and factor that rate
increase into prices before the committee meets. If the committee follows through as expected,
there is usually little or no market response. However, if the Fed raises interest rates by one-half
percentage point instead, the market will probably react abruptly.
Surprising economic news, war or terrorism, and other unexpected events disturb the markets
sense of control and often send it in a tailspin. Of course, really good news can cause a big bump in
prices, but it seems like these days it’s bad news that captures most of the headlines.
What Does this Mean to You?
For most investors, these market bumps are just that – temporary bumps that soon smooth out.
However, you need to be aware of the factors that move the market, since they can create
opportunities as well as problems.
If you have had you eye on a stock, but felt it was a little over-priced, one of these market events
might just take enough wind out of its price to put it in your buy range.
On the other hand, if you need to sell, watch for earnings reports, Fed meetings, and other
predictable events that might shave some points off your stock.
Suggested Reading:
Basic Stock Information to Get You Started
When and How to Sell a Winning Stock
What moves the stock market?
The Cheapest Stock Around
Learning the Stock Market