There are many different factors that can affect the state of your stocks, and all of these are worth keeping an eye on if you want to ensure the health of your investments. The first thing you should keep in mind is that although numbers and figures represent the stock market at the surface level, the market is actually a reflection of people’s opinions.
This leads us to the first potential influence on the state of the stock, the perceptions of investors. Stock prices go up if a company is perceived positively or is expected to make earnings in its future, as their stocks become more desirable. Similarly, a negative outlook can have a deteriorating effect on the price of a stock. These perceptions can be influenced by the health of the industry, the company’s performance, controversies, etc. Supply and Demand is the ensuing factor in determining the price of the stocks. As stock becomes more desirable, sellers raise their prices to ensure maximum profits. As stock becomes less desirable, sellers lower their prices to convince buyers that they are making a worthwhile investment.
The performance of a company is evaluated chiefly by its financial state. Their earnings report is published, after which investors evaluate which companies have had the most promising track record. If a company’s earnings have risen from a previous report, the investors would believe that their outlook is positive, which raises the price of a stock. If the earnings are lower, their investments will lower, which may have a compounding effect on the future performance of a company.
Influences on the market at large
There are numerous reasons why a market may have trouble performing, many of which no one individual can control. This can include:
Inflation is a process that follows growth within an economy. As people make more money, the prices of goods and services rise accordingly and the overall cost of living will be higher. Although inflation usually relies on the performance of the economy at large, it does not always agree with its reality. The actions of outside forces, like government intervention, will quite often influence inflation artificially. A rise in inflation may cause insecurity among investors, which they will then follow by increasing interest rates to ensure that the income received would be of roughly the same value. High inflation negatively affects the outlook of the market, whereas lower inflation is usually ensues by higher investments.
While the performance of many different commodities may affect the price of the market, the most important commodity which may influence the economy by far is oil. There is demand for oil on in many different industries, and a low availability can have disastrous results on the economy at large.
Noteworthy events can easily influence the confidence of investors in the future performance of a company. These are not relegated solely to events related to a business, and can also be based on events of nationwide or worldwide importance. Surprisingly, A lack of news is usually a positive sign and results in a rise in investment prices.
There are primarily two names for the trends of a market. This can be a bullish market or a bearish market. A bullish market denotes a marketplace that is high-performing and whose prices are likely to keep rising in the coming future. A bearish market is slow to change and unpromising to investors, whose prices are subsequently likely to fall.
The category a market falls into means it may have different effects on the world at large.
A bullish market has several indicators:
- It raises confidence in the economy
- Unemployment rates tend to be lower
- Consumer spending rises
- Corporate earnings rise
- Stock valuations rise
- Demand for stocks increases
A bearish market will tend to have the opposite trends:
- Confidence in the economy is low
- Unemployment rates tend to be higher
- Consumer spending lowers
- Corporate earnings lower
- Stock valuations lower
- Demand for stocks lowers
Stock market analysis
To ensure that you are aware of the state of the market as it is, and to make sure you are making all the right choices, you must invest some time into stock analysis. An investor would carry out this analysis by two different methods, technical and fundamental analysis. They are both vitally useful in understanding the big picture.
This is a form of analysis relying on manually reading through data on the stock. This data comprises several different possible sources. First of these are the figures for price changes. The scale and the severity of a price change can both inform an investor of their decision. Analyzing the previous trends of a stock is vital in understanding how it will behave in the future. Can you trace exactly where a stock price is likely to land depending on the time of year? Does it tend to have a history of low or high performance the majority of the time? The combination of all this information can help you spot patterns and indicate which stock is worth investing in.
Fundamental analysis deals with fewer figures and revolves around analyzing what characterizes an actual business. Studying how a company behaves may give you clues to their future performance, which a purely statistical analysis could not have. Fundamental analysis may include examining the following sources of information. The EPS (or Earnings per Share) is the value of a company’s overall profits divided by the number of shares they have available. The next source is an earnings report, which informs investors in the quarterly reports of a major business. It includes internal information on whether their sales and profits have been on target.
Both of these strategies of analysis are vital to both understanding the potential performance of a stock, and how you should react in response.