When supply exceeds demand, stock prices can fall, and vice versa. When supply and demand are balanced, stock prices stabilize. When this balance is disrupted, stock prices may change to restore equilibrium. Stock prices are influenced by a range of factors, from a company's fundamental values to market and economic conditions. Here are some key factors that can affect stock prices:
1. Financial Performance
The financial performance of a company, including its profit and revenue, is a major factor influencing stock prices. Positive business results often lead to an increase in stock prices. Conversely, if a company experiences losses, it can erode investor confidence and indirectly cause stock prices to decline. Financial metrics such as Return on Equity (ROE) and Return on Assets (ROA) are commonly used to assess a company's financial performance.
2. Economic Development
The development of the global economy in general, and national economies in particular, is one of the crucial factors influencing stock prices. Stock prices typically move in line with economic development. This means that stock prices tend to rise as the economy develops and decrease during slower economic growth periods. Moreover, favorable economic conditions lead to higher profitability for companies, better income, and thus make their stocks more attractive. Investors also find potential in stocks more easily when companies have the capability to pay higher dividends to shareholders. Before distributing dividends, companies must first announce the dividend amount and the payment date to shareholders. The announcement of dividends and regular income also serves as a way to attract and retain investors. However, if the economy slows down, businesses may struggle, leading to potential reductions in dividends.
3. Financial Market
Financial markets directly impact stock prices through factors such as interest rates, exchange rates, capital flows, and monetary policies.
For instance, in the case of interest rates, if the central bank decides to lower the benchmark for interest rate, commercial banks will likely lower deposit rates and lending rates accordingly. This typically leads individuals to withdraw deposits from banks and invest in other channels with higher returns, such as investing in the stock market.
Reduced lending costs help businesses lower their capital costs and increase investment in production. Additionally, businesses may use borrowed funds to invest in the stock market, seeking short-term investment opportunities.
4. Market Supply and Demand Law
The law of supply and demand profoundly impacts both the overall domestic commodity market and specifically the stock market. If there is a high demand for a product with supply unable to meet it, prices tend to rise, and vice versa. Similarly, in the stock market, if a particular stock is sought after by many investors, its price tends to increase. Although the law of supply and demand is a significant factor influencing stock prices, investors also need to be cautious because not every heavily demanded stock is necessarily a good investment.
5. Investor Psychology
The stock market is a sensitive market where even a slight disturbance in information can cause significant fluctuations. During such times, investors need to maintain strong psychological resilience to filter accurate information and make investment decisions based on careful considerations.
6. Political and Social Situation
Events such as crises or pandemics can significantly disrupt the economy and directly impact business operations, reflecting on stock prices in the stock market.
Some notable recent events that have affected the stock market include the COVID-19 pandemic, conflicts between Russia and Ukraine, and recent conflicts in the Gaza Strip, which have led to instability in the Middle East and globally.
Understanding and identifying the factors influencing stock prices will help you become more cautious when making buying and selling decisions, and when investing in stocks. Before investing, thorough research and careful analysis are essential to accurately assess the true value of stocks. Additionally, having a comprehensive understanding and thorough research of the influencing factors will help you avoid making emotional decisions regarding stocks. Moreover, investors will have a more stable mindset when faced with disruptive information in the market.
