Stock market price change and what causes it.

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If you haven’t been in the marketing industry for very long, then you might wonder about what factors can affect the prices. The marketplace determines the prices of the stock, but there isn’t any one clear solution that would help us to understand just how the prices are fixed. However, we do know that there are a few things that can force the price down or up, including market sentiment, technical factors and fundamental factors.

Fundamental Factors

The fundamental factors would determine the stock prices in any market that is efficient and it is a combination of 2 things. These are:

• Earnings base

• Valuation multiple

 

The common stock owner has a claim on the earnings and the EPS or earnings per share is the return on the owner’s investment. So, when you are purchasing a stock, you are essentially buying a proportional share of the future stream of some earnings. This is where the valuation multiple comes into play since it is just how much you are willing to earn for those future earnings. These earnings might be given you to as dividends, which means that the company might keep some of the money to reinvest.

Technical Factors

There are also numerous technical factors that need to be calculated in to achieve the price, including:

• Liquidity – This is often a factor that isn’t appreciated, but it is crucial. It refers to the amount of attention a specific stock is getting and the amount of interest that the investors are showing.

• Trends – Stocks most often fluctuate due to the short term trends and momentum can be gained by the price moving up. However, sometimes it goes down and the trends can go both ways.

• Demographics – There are a few dynamics that are taken into consideration here, including the older investors who come out of the market so they can meet retirement demands and the middle aged investors who invest heavily in the market and are the peak earners.

• Incidental transactions – These are sales or purchases of stock that have been motivated by factors that aren’t the belief in the stock’s intrinsic value. These include a wide variety of things, such as insider transactions.

• Substitutes – Companies are competing for more investment funds on the global stage with some other asset classes, including foreign equities, real estate, commodities and government and corporate bonds. This plays an important part, but the relationship between the demand for these substitutes and US equities is hard to determine.

• Economic strength of peers and marketing – Company stocks always tend to move with the market and the industry or sector peers.

• Inflation – This is one of the largest drivers in this area and lower inflation can drive the high multiples, while the high inflation can drive the low multiples. Deflation is very bad for stocks since it symbolizes a loss in terms of pricing power for the companies.

 

These are factors that you should try to learn about, but can be complicated. However, if you watch everything going on in the world, including inflation, then you can try to see how it works.

Market Sentiment

This factor is dependent on the participants in the market and their mentality. This works for both the entire market and the individual investors and this is the most disturbing factor because it is critical and it is just starting to be fully understood. The sentiments are often obstinate, biased and even subjective depending on the individual who is looking at the stock.  This isn’t something that you would always be able to see, but you can feel it and sometimes they have a feeling about a specific stock and will sit on it for a long time. This means that they will eventually get the outcome that they want, especially if they are extremely stubborn.

You should make sure that you can understand the various forces that can affect the prices of the stocks. Not only can the sentiment of the market, including the entire market and the individuals, affect the prices, but so can various trends. You should ensure that you understand the various fundamental factors that are there, such as the earning potential and more. Also, you need to know about the various technical factors, which are more complicated and include, trends, demographics, liquidity, various transactions and more.

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