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Stock prices never remain the same. They tend to fluctuate, especially during certain economic shifts. Sometimes, the change makes sense, but other times, you may feel very confused regarding the volatility. Well, stock market prices are affected by technical, fundamental, and market factors. Some events lower the average purchase price while others increase it.
Before you start investing in stocks, it’s essential to know what leads to these fluctuations so you know what to do if a huge shift happens. Below, we’ll present 6 things that increase and decrease stock prices.
1. News Related to Politics
Certain political news can lead to stock price shifts for some time. For example, when Russia invaded Ukraine in early 2022, the stock prices fell. Meanwhile, energy costs began to rise. The 2020 presidential election that took place in the United States also led to volatile stocks. Something you need to know about these things though is that lots of traders stop paying attention to a topic and go to another one that is more interesting or exciting. This is because the markets’ reactions aren’t always obvious.
2. Liquidity
Another thing that leads to fluctuations in stock prices is liquidity. This aspect involves the amount of interest that some stocks attract from their investors. When a stock is more liquid, spreads become tighter. It’s due to the fact that market makers will have the chance to purchase and sell with smaller risks.
3. Dividends
Companies can share their profits with investors via dividends. Lots of firms will use dividends to share more of their earnings with their shareholders. Meanwhile, some firms just don’t pay any dividends. This is because companies with high potential to grow usually need to still invest more in their businesses to be able to achieve their goal. So, money doesn’t always get sent to shareholders in these scenarios.
4. Technical Factors
In some cases, traders try to predict the future direction of a stock with technical analysis before they make a decision. In the short term, this can lead to a shift in the price of a stock. However, in the end, the value of a stock will come from the business’s long-term earning power. The movements are hard to predict most of the time, and this is why stock prices are so volatile il the short term when it comes to technical reasons.
5. Economic Reasons
The economy has a huge effect on stock prices. The economy overall makes stock prices become lower or higher depending on the speed at which it moves. Things such as economic slowdowns or recessions can have a massive impact on stocks. How strong an economy grows will also lead to a shift in stock costs.
6. Valuation Shifts
Because valuation focuses on how the market sees future interest rates and growth, it’s extremely difficult to predict. Generally, firms that have higher growth rates sell for much higher valuation multiples.
Conclusion
Stock prices are affected by lots of things. Whether they move higher or lower will depend on things like liquidity, economy, valuation, dividends, and political news.
