Environmental Factors That Influence Stock Prices

These three factors influence the supply and demand of stocks in the stock market and it directly influences the prices in the market.

Much has been said about the strategies that can be used to control losses and optimize gains in the stock market. Due to the largely volatile nature of stock prices in the stock market, the investor has to clearly understand what propels such changes before putting strategies in place to mitigate their effects.

In the stock market, there are primarily three main factors that lead to long-term or short-term fluctuations. These factors include government policies, international transactions, and the effect of speculation covering the political, economic, and social environments of any stock market.

The first is by the government. The government of a country through its fiscal and monetary policies have their way of regulating the flow of cash and investments within the nation. Through this, governments spend more (say by giving out more contracts to businesses) or less to possibly help ease unemployment or stabilize prices.

Fiscal policies, on the other hand, talks about how the government of any nation adjusts its spending levels and taxation rates as a means of influencing a country’s economy. Monetary policies on the other hand, talk about how the government as well through the central bank influences a nation's money supply and they do this, for example, by increasing and decreasing interest rates.

Naturally, where the government can influence how much money is available for people to invest with, they indirectly influence the demand and supply within the market. The second is the influence by international transactions.

The world is now interrelated and whether we like it or not, another nation’s economy can directly influence ours in more ways than one. International transactions, here, refers to how transactions or funds move between one country and another one.

It influences the strength or otherwise of countries in relation to other countries thereby exposing weaker nations. Think of this in terms of exportation and importation. When a country exports more, it is constantly bringing money into its shores and stimulating its economy.

However, when it is always importing, it is moving money to another country and thus stimulating the economic growth of this other country. It will, thus, stimulate the other country’s economy and enhance investments in that other stock market.

This will ultimately reduce the demand for investments in our country/ stock market, causing prices to crash in the stock market as a way to spur more investments.

The last is how speculating affects the stock market. While there is the speculation that comes from participants of the market leading to the changes in demand and supply, both the speculation and expectation that influences the system starts from the information that is disseminated in relation to both.

From the consumers of the products of companies in the stock market, the investors themselves and even politicians, various views are expressed and communicated at different points in time. How various groups feel about the stock market is enough to influence what happens in it as it also directly influences supply and demand.

These three factors influence the supply and demand of stocks in the stock market and it directly influences the prices in the market. Being wary about the changes in government and economic transactions in the international market can help you understand what is happening. However, it cannot help you exactly predict changes.

Written by Lawretta Egba.