It is difficult to identify specific factors that influence
the market as a whole. The stock market is a complex, interrelated system of
large and small investors making uncoordinated decisions about a huge variety
of investments.
The market, so to speak, could be construed as sort of an
ecosystem, one organised by the "invisible hand". Each market
participant acts and plays freely using their individual ideas and by following
their own personal interests. "The market" is shorthand for the
collective values of individuals and companies.
There are basic economic principles that can help explain
any up and down market movements, and with experience and data, there are more
specific indicators market experts have identified as being
significant.
The Basics: Supply and Demand
In a market economy, any price movement can be explained by
a temporary difference between what providers are supplying and what consumers
are demanding. This is why economists say that markets tend
towards equilibrium, where supply equals demand. This is how it works
with stocks; supply is the amount of shares people want to sell, and demand is
the amount of shares people want to purchase.
If there is a greater number of buyers than sellers
(more demand), the buyers bid up the prices of the stocks to entice
sellers to be willing to sell or produce more. Conversely, a larger number of
sellers bids down the price of stocks hoping to entice buyers to purchase.
Individually, security instruments like stocks and bonds are
dependent on the performance of the issuing entity (business or government) and
the likelihood the entity will be valued more highly in the future (stocks) or
be able to repay its debts (bonds).
Widely Accepted Market Indicators
This begs a new question: What creates more buyers or more
sellers?
Confidence in the stability of future investments plays a
significant role in whether markets go up or down. Investors are more likely to
purchase stocks if they are convinced their shares will increase in value in
the future. If, however, there is a reason to believe that shares will perform
poorly, there are often more investors looking to sell than to buy.
Events that affect investor confidence include:
- · Wars or other conflicts
- · Concerns over inflation or deflation
- · Government fiscal and monetary policy
- · Technological changes
- · Natural disasters/extreme weather fluctuations
- · Regulation or deregulation
- · Changes in the trust of whole industries such as the financial industry
- · Changes in the trust in the legal system
For example, It took Sensex just 17 months to add 31,000
points from a March 2020 low of sub-26,000 level to hit 61000 level for the
first time ever on Tuesday. This is against 31 years (since its inception in
1986) the index took to touch the 31,000 mark for the first time in May 2017.
This move is attributed to the COVID-19 pandemic, which created a lot of
uncertainty about the future. Therefore, the market had many more sellers than
buyers.
Interest rates are also believed to play a major role
in the valuation of any stock or bond. There are several reasons for this, and
there is some debate about which is most important. First, interest rates
affect how much investors, banks, businesses, and governments are willing to
borrow, therefore affecting how much money is spent in the economy.
Additionally, rising interest rates make certain "safer" investments
a more attractive alternative to stocks.
Bottom Line
While using your instincts and intuition when investing,
it’s easy to let your emotions get the best of you. Keep in mind that even with
careful research, investing always
carries some inherent risk. It’s a good idea to diversify
your portfolio as much as possible, so that you’re spreading
out your risk over multiple investments. An easy way to do this is by primarily
Mutual fund Schemes instead of individual
stocks.
Mutual
Funds are great ways to build wealth with relatively low maintenance and low
barriers to entry. If you also want to invest in individual stocks, it’s always
a good idea to do your
research and become well-informed about a stock’s past and
potential performance before buying anything.
Ultimately, though the stock market may have its ups and downs in the short term, investing in equity funds of mutual funds is a great way to build wealth in the long term. Be sure that you’re investing smartly with a strategy that suits your financial goals, and keep your focus on your long-term goals (such as saving for retirement) to avoid making hasty decisions based on short-term panic or the fear of missing out.
You Can Contact me on any of your Investment and Insurance Requirements.
Ritesh Sheth Call on: 9930444099 email : riteshdsheth@gmail.com
