We are in turbulent times. The markets dove low today on news of COVID-19 cases and it created a sudden fear that the good news of re-opening would be short-lived. As markets will fluctuate, in recent times, they have seen more turbulence than normal. We take a look at the reasons today:
Explaining the Stock Market
For investors wanting to dip their toes into the volatile world of stock trading, they must first understand the basics. The United States stock market is a collection of exchanges between traders. Public companies offer shares of their stock, and investors come together to buy and/or sell these shares, depending on what their angle is. Some investors prefer to play the long game and hold on to their shares for as long as possible. Others are trying to make quick cash, and trade their stocks within minutes of purchasing them, hoping to make a profit.
Investing in the stock market can be a financially beneficial strategy, but it does not come without risk. The stock market is highly volatile and can skyrocket or plummet with very little notice. We have seen this time and again during the COVID-19 pandemic, with sudden shifts in oil and many other verticals in the market. There are a few key ways to try and stay in tune with the ever-changing market.
What Factors Affect the Stock Market?
A share price will depend on the anticipated profitability of the company that allocated it. If the company is facing overwhelming demand for its products, the price will likely be incredibly high. However, if the company were to be involved with a high-profile scandal, the stock price would very quickly start to drop. Investors would scramble to sell, and the shares would be worth a fraction of what they used to be, even just a day before.
Economic factors that impact the stock market can include unemployment and interest rates. When unemployment is high, it means that most individuals will not be looking to purchase unnecessary items. For example, current unemployment rates are high due to Covid19 causing thousands of companies to close and temporarily lay off workers. This has had a monumental decrease in the stock market because growth and profit are not anticipated for many companies in the near future. When interest rates are low, this is a signal of potential growth in the economy. People will buy more things because they do not have to worry about making high-interest payments. This will cause the stock market to surge back up to where it was before.
Certain factors cannot be controlled by humans, such as major natural disasters. Whenever an earthquake or a hurricane hits a large city, the stock market will tend to decline. This is because the economic activity in that city will decrease, putting pressure on stock prices.
Politics are another reason why the stock market is so volatile. If political relations with another country are hostile, this would cause their US-based company’s stock prices to fall. The opposite result would occur if the political relations are positive. Stock prices also correlate to the daily news and press conferences. If the president, for example, were to publically denounce a company or industry for their negative actions, their share price(s) would quickly fall.
The volatility of the stock market is overwhelmingly caused by human behavior. Whether it swings one way or another entirely depends on worldwide events and how people react to them.