What Stock Markets React to

The stock market, much like any other market, is a system that has deep ties with human perception. At their most basic level, stock prices represent the confidence that people have in companies. This would have to include several factors that may affect the outlook on how a company will perform. Investors want to make profits off of their stocks via two methods. Either the price of the stock grows, and they can sell the stock at a much higher price than they bought it. Or they receive higher and higher dividends over time. Both of these necessitate the growth in a company’s profits, so the attitude people have towards a company is essential to investors. They do not know for sure how a stock will behave in the future, so any indication is of use to them. This is especially true if they are doing fundamental analysis. So, in this article, we will be discussing the various factors that can affect the perception of a company.

Important stock market influences

The factors that influence the perception of a company are numerous.

Economic effects

The first thing to keep in mind is that all companies are tied in with the local (their country’s) economy. No company can escape the environment it arose in. So what could affect the economy?

First off, keeping a close eye on inflation and interest rates is vital. Both of these are intimately linked. The moment inflation goes up, the prices for all goods and services do as well. Some inflation is good, as it indicates that the economy is growing. The problem is when inflation gets out of hand. When it is not under control, paying for basically any commodity or service becomes near impossible. This lowers consumer spending in companies as well. So, ideally, rates of inflation should remain low if stock prices are to increase. Naturally, money lenders worry when inflation rises too much and put up their interest rates to match the growth. This, too, has a negative effect on stock prices, which are likely to decline shortly thereafter.

After this, we should consider the price of oil. Oil has such an incredible amount of influence in economies that its prices affect the prices of stocks. As well as the stock market in general. This is because oil is vital to all sorts of sectors, including heating, transport, etc. If oil suffers, so do a whole load of industries, dragging down companies either directly or indirectly linked with it. This, in turn, affects the performance of all sorts of stocks.

Finally, national events can have effects on the market as well. Instability can have a huge effect on the economy in general. For example, news of war in an important oil hub may change oil prices, which will affect economies worldwide. New legislation passing can also affect how a certain company can perform, and if it will be restricted in any way.

Public perception

Investors should keep a close eye on two things, keeping in mind how the public may react. First of all, they should understand how a company’s product or service performs. They should be certain that the company can make profits off of what they sell. This means they fill a certain niche that people are likely to fill. If a company is making too little products or it is of too low quality, this can reduce sales. A company’s advertising campaign can also be vital to people buying their products. It may improve the perception of their product or them as a company or both.

The perception of the company itself is as important as the perception of the product it sells. This is why keeping track of the news is important. If one of the higher officials in a company is in a scandal, it can affect the stock, as could news about controversial practices the company conducts. This could mean boycotts of the company, and lower profits overall.

Corporate effects on the stock market

Investors’ perception of a company can also have several bases. First of all, they could originate in how they view a company’s foundations. They want to know who is working in the company, and if these people are capable of pushing it forward. Where these people are likely pushing the company towards, if they have a vision, these are also of importance. They also want to know if a company’s structure is sustainable so that it is efficient at doing what it does. News about the restructuring of a company could put investors on edge.

The most important thing investors want to know about is their financial performance. This directly affects their stock prices. For this, investors will need to look at the earnings report of a company. This document directly tells investors if profits are rising from the last notice, where the growth is, and the net profits of a company.