4 Key Factors Driving the Market

As a stock trader, you need to be aware of factors that impact the market and cause a change in market conditions. Ultimately, these changes have an effect on stock prices. Learning about these changes will help you formulate a strategy, allowing you to be aware of what to do next, depending on the market condition.

Unfortunately, there is no certain equation or formula that tells us how a stock will behave in the market. But we’re aware that there are a few factors that impact stock prices. Here are four of them:

Market Sentiment

Market sentiments are one of the most influential factors when it comes to stock price movements. One speculation can drive the stock market up and another can bring it down in no time. Speculations and expectations can keep the market artificially high or low, impacting the real stock trading process.

Market sentiment is basically the psychology of the participants involved in the market. Their analysis and expectations of the future price rates and market trends drive the market.

Company News

The company’s performance and news related to its business is one of the most major factors that impact the market.

The company’s news of a merger, a loss, change in CEO or the launch of a new product has a huge impact on the price of a company’s stock. And, if it’s a multinational or a huge name in the industry, it certainly will have an impact on the whole stock market.

Economic Factors

The economic outlook drives investor expectations and speculations which has an impact on the stock market. If the investors expect a positive economic outlook, they’ll invest more in hope of high returns and vice versa. In addition to this, the central bank’s policy of every country also has a huge impact on the stock market.

Other factors that drive the market are inflation, currency exchange rate, interest rates, changes in policies and role of government.

Stock Valuations

Stock valuations have an impact in the long run. Key ratios used to value stock are price to earnings (P/E) ratio and earnings per share (EPS).

Calculating EPS helps investors in knowing their return on their investment and the dividends they’ll receive on stocks they’ve invested in. On the other hand, the P/E ratio is a way of representing the discounted present value of the stocks and determines the expected growth rate.

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