What are the key factors that drive the stock market up and down?



What are the key factors that drive the stock market up and down?

First, let's get acquainted with some basics about the stock market. When a company sells its shares through an exchange, it is actually selling the ownership of the company. Now, the question arises why do they sell the ownership of the company. It is because companies are able to acquire funds for their business by shelling out small chunks of ownership. 

 What determines the price of a stock in the stock market?

 When talking fundamentally it's actually the demand and supply for that particular stock that exists in the market. In a more financial manner, it is actually the last price the share is sold for. There are 4 terms in this scenario:
  • The Current Price: The current price is the last selling price the share is sold for.
  • The bid: It is the price at which a person is ready to buy a stock.
  • The ask: It is the price at which a person is willing to sell a stock.
  • Spread: The difference between the bid and ask price is called the spread and a smaller spread is usually desirable for more voluminous trades.
So when the bid and ask price match, the sale is executed that very price becomes the current price of the share.

Key factors that drive the stock market up and down:

The above paragraph just tells about how a price is determined. Under key factors, we will be looking at what factors affect an investor's perception and give direction to his decisions whether to buy or sell a stock.

  • Company Parameters: Company parameters would include the yearly profit disclosure, interim reports by the company, new products being launched, change in key personnel of organization (M.D., CEO, etc.),  and some negative or positive news about the company in the media.
  • Country Parameters: This would include new economic policies, change in tax structure for the company's products, elections in the country, death of key people in the country( President, Prime Minister), and relations with other nations.
  • Global parameters: Under the global parameters, we have the price of crude oil, the price of different commodities, the currency exchange value, global recession, terrorism (like the 911 attack) and global trade wars (such as the US-CHINA trade war, where tariffs are being increased for import and export.)
  • Technical Parameters: Technical parameters would include the volume of the shares, the percentage of transactions that involve delivery ( since delivery means serious buying and indicates a bullish trend), the sentiments of people doing futures and options contracts, etc. 
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