Have you invested in stocks? If so, then you must feel overwhelmed when stock prices rise and fall. It is quite natural to be anxious but you can control your emotions by knowing the reason behind such a phenomenon.
Sometimes, the price swings seem like a usual thing. However, sometimes the unstable prices bother you a lot. Stock prices move around depending on the market conditions.
There are other factors that have an influence on the price of the stock. Foreseeing how prices are going to demand extensive research from your end. Reasons for buying and selling stocks would vary from person to person.
One can get enough evidence that there is a buyer and seller for each category of stocks. Sometimes, the demand decides whether or not the buyer would pick that stock.
If you don’t have the required finances to invest in the stock of your favourite company that you have been eying for long, taking out longer term loans for bad credit can be a solution to your problem.
Want to learn which factors are responsible for price fluctuations of stocks? This guest post has made this job easy for you by gathering and presenting all the necessary information. Go take a look at it.
Factors that decide the variation in stock price
When it comes to categorizing the factors, these are majorly divided into short term factors and long term factors which are discussed below:
Short term factors
It should be noted here that stock prices can swing within a day, a month or even a year. There are pointers based on which these prices move up and down. These are further categorized into:
There is no doubt that the economy plays an integral part in deciding the price of the stocks. A slight change in figures related to the economy can become the reason behind the fluctuation of stock prices. Whether the economy is growing or slowing down can have an impact on the stock prices which will either shoot up or drop.
Incidents like recession, economic slowdown etc can also contribute towards the variation of the price of stocks. Buyers and sellers are more concerned about the negative effects that it can bring to their corporate earnings.
You cannot ignore two important concerns that are inflation and interest rates while determining the price of stocks. When the economy is growing, the inflation rate remains on the higher side leading to high interest. This is although favourable for stock but too much is not good at all.
Too much growth will ultimately result in such a level of inflation and high rates of interest that increases the anxieties of the investors. It is because this could have an impact on the overall value of financial assets.
News related to political fortune like election results, legislative uncertainty, military clashes etc directly affects the price of the stocks. How the market will react cannot be known from these factors simply. It also depends on the interest of the investors who can suddenly shift focus to other concerns.
Technical evaluation of the market is preferred by traders before proceeding to invest. This ensures which stock should be bought and the perfect time to consider for buying stocks. Technical analysis is important when you have to read and understand the price variations.
Other valuation parameters are not considered in technical factors. This is recorded in the form of a chart that the investor should review from time to time. The chart will show some patterns which further indicate how prices are moving around:
- Prices fluctuate as per the trend
- Past activities can predict the future
- Security price shows every detail about the security
Long term factors
Long term factors are associated with profits and finances available to investors. The price of the stock of the business will depend on the earning potential of the business. If it is calculated for a longer period, this can contribute to better or worse.
Moreover, three aspects are there that should be pondered by you in this category.
Growth of the earnings
The amount of return will depend on how well the profit earned by the company is growing. This again is influenced by the economical growth and certain scenarios that have a connection with the business. There are businesses that are able to make immense profits from major shifts in people’s buying behaviour.
Dividends are means through which the company offers a percentage of its profit to the investor. Big companies offer a major portion of their earnings as dividends or share repurchases to investors. While there are companies that don’t intend to offer a dividend to their investors,
It is because they need to invest a lot towards the growth and expansion of their business.
Variations in valuation
The value of the business can change depending on what viewpoint is reining the market. It will have a significant influence on future growth and interest rates. One of the metrics that is used to evaluate the value of the business requires stock price to be divided by annual earnings.
Businesses showing high growth rates have higher stock prices due to high value. The shift in the business value can affect the return or earn of the investor. Generally, a highly risky stock comes with a high discount rate which also depends on the inflation rate.
This means higher inflation would result in a high discount rate.
The bottom line
The upward and downward movement of the stock prices depends on different types of factors that have been enlisted in this guest post. Investing is an important decision of your financial regime. Try to concentrate on these factors if you wish to predict and invest for the future.
The best investment approach would be to maintain a diversified portfolio. This is indeed a trick to survive odd financial circumstances. So, you will have to invest in different stocks and other securities to balance the risk aspect.
Sticking to the diversified portfolio for the long term can help you steer through many ups and downs happening around the economy.