Studying the factors that affect stock prices is very essential for all those involved in stock trading or investing. Sometimes, the volatile nature of most markets makes it difficult to analyze the exact reasons for various kind of movements. Inventing smart intraday trading strategies successfully is possible only after being aware of the factors that strongly affect stock prices. By referring to the information presented below, you will be able to understand these factors easily.
You need to analyze the company's performance quite keenly. It is one of the most vital factors that affects its stock prices. Stock targets are provided by fundamental and technical analysts, depending on various multiples including price-earnings and earnings per share ratios posted by the company.
The future expansion policies of the company, present acquisitions, management philosophy, revenues, and free cash flows generated, all determine the stock prices in the days to come. Stock research, with an objective of finding companies with impressive performance, will help you emerge successful in markets which are hard to predict.
Investors will always be looking for profitable bets. They will be booking profits at every level which can bring down stock prices. So investor behavior in stock markets affects stock prices greatly. Stock prices see an all time high in times of a bull run, while they can correct to a great extent during a bearish market trend.
Economic Growth Data
Economic growth data is another major factor that affects the stock price of a company. Prices react in a positive way, if the growth of all the sectors of an economy is consistent. Otherwise they react by falling sharply. Sectors such as automobiles, banking and financial services, metal and commodities, capital goods and infrastructure depend largely on economic conditions. In times of economic recession, you will get cheaper stocks, than they were in times of market highs.
The Foreign Institutional Investor (FII) behavior also has an impact on stock prices, especially in developing economies. These are the institutions which buy and sell stocks in huge quantities. So, any kind of FIII buying will be positive for stock prices, and selling will consequently be negative. You can get the details about the investments made by foreign institutional investors through newspapers and television channels. By imposing restrictions on foreign investors, many stock exchanges across the world have brought in more transparency and regulations for the benefit of investors.
Political conditions prevailing in a country also affect the stock prices. For steady economic growth,a stable and effective government is required. In the absence of a conducive political environment, the entire stock market is expected to take a hit.
Valuation of Stocks
Investors consider the valuation of stocks before purchasing them and they may postpone buying stocks if the current valuation is not good enough. This can affect the price of the stock in a negative manner.
That concludes our listing of the most important determinant factors that affect market movements all over the world.