Ups & Downs of Stock Market
Stock market moves due to numerous reasons. It can be due to Inflation, Interest rates earnings, oil, war, terrorism, crimes, frauds, political instability and many more but the factor which effects the stock market the most is uncertainty. The area of stock market involves daily inflow and outflow the slightest change of some unplanned happening shakes the whole market and may affect the market in long term or short term basis. Most of the people think that the potential data revolving in stock market is same and available to all at the same time, this is not true, but in a wider angle the whole stock market absorbs the information as one.
Stock market is run by investors and to be familiar with what moves the stock market we must understand what moves the psychology of the investors. If we take an example of a manufacturing company the rise in prices of raw materials subsequently means the rise in price of the finish products hence due to rise in price the demand will decrease which will eventually affect the stock market. The rise in oil prices will surely affect the stock market.
The day before Katrina hit the Gulf Coast, the Dow Jones Industrial Average closed at 10,450.After eleven days, it closed at 10,589, up by 139 points, or 1.3%. Generally natural disasters reduce short term output while enhancing economic growth over the long-term through rebuilding the damage made by the disaster. This equilibrium of ups and downs inclines to reduce the overall economic impact of hurricanes.
Market reacts in three ways which happens internally in market i.e. excluding external factors.
1. A correction
An unexpected fall of 12% in the central market indexes like the Dow Jones Industrial Average or the S&P 500 Index. Stock prices are apt to more convincingly reflecting company’s progress and prospective earnings. Investors, perhaps, may not be happy about the drop in stock values, but they should recognize that the market from time to time recoils swiftly after a correction.
2. A crash
What takes place if the market keeps dropping? Let’s say, 23% or more in a short period and go along with widespread vending? It is known as a market crash. We’ve had two major crashes in the 20th century 23% fall over two days occurred in 1929, and a 22.6% fall in 1987.
3. A bubble
When excessively confident stockholders determine stock prices to unsustainable levels a bubble is formed in the stock market. It last occurred in the stock market in the 1990s. When the bubble bursts, stockholders start to trade and stock values plunges. Though it possibly takes time, post-bubble stock prices often devalue, giving shareholders the opportunity to buy at bargain prices.
The suave operation of all stock market activities accelerates economic growth in lesser costs and enterprise risks endorse the production of goods and chattels as well as employment opportunities. This is how our financial system is presumed to stretch prosperity.