It can be hard to quantify the size of the global stock market, although the world’s exchanges currently boast a total market capitalisation in excess of $85 trillion.
While the stock market is also less volatile than the foreign exchange, it’s equally complex and vulnerable to a range of global and national factors.
In this post, we’ll look at some of the most important factors that impact on the stock market and ask why they’re so important.
1. Supply and Demand
In a market economy, fundamental price movements can often be explained by a simple and temporary difference between the available supply and the demand that exists amongst customers.
This is particularly relevant in the stock market, where the price of shares is impacted directly by the real-time relationship that exists between supply and demand.
For example, an increased demand for stocks see shares sell for a premium, whereas a reverse of this trend sees prices fall as a large number of sellers bid down the price of various equities.
This often occurs during times of economic tumult or uncertainty, or when a particular industry has been impacted adversely by geopolitical or macroeconomic factors.
2. Global and Geopolitical Events
Frequent traders will know that forex brokers offer access to real-time news sources, which cover the latest geopolitical events from across the globe.
This is an important tool in any trader’s armoury, as everything from major monetary policy decisions to national disasters can impact directly on the free markets (including individual stocks).
This was borne out during the coronavirus pandemic and its subsequent lockdown measures, where certain industries (such as aviation and hospitality) were compelled to close almost overnight.
Of course, this sent selected stock and index values, while others soared amid increased demand and the forced change in consumer behaviours. So, it’s important to follow global events as they unfold and strive to understand their impact on the stock markets.
3. Company Actions
While the hype and speculation around companies can also impact on share prices (particularly if this involves a business being acquired or merged with another), the direct actions of businesses can also influence their stock values.
For example, businesses are required to regularly file dividend and financial reports, the latter of which may be issued on a quarterly basis. Such data releases can cause stock prices to rise or fall, depending on their precise nature and how they compare to previous forecasts.
The correlation between company actions and share price is even more pronounced in the case of major corporations, due to their high-profile nature and visibility.
In this instance, the launch of a new product or firing of a longstanding CEO can send share prices soaring in opposite directions, so following this type of information can be worth its weight in gold.