As of 2022, surveys show that only 16% of Indian adults have chosen to invest in shares – that’s in contrast to around 60% of Americans. Though this number looks small, there is hope: the younger generations claim to be more cautious with their investments and may be more open to making them with the right information. Currently, they attribute this hesitancy to the seemingly erratic nature of the stock market.
Stock traders would be familiar with this phenomenon as the stock market is influenced by many elements and fluctuations that are commonplace in trading. However, young traders may be surprised to find out that there is a way to predict these shifts, and that may strengthen their trust in investing. The key is to know what to pay attention to. Below, we’ve compiled five things new traders should watch out for to anticipate market impacts.
Company financial reports
One element that regularly affects stock prices is when companies release performance reports. These indicate growth through values such as profits and employment rates, and they give insight into future movements by disclosing prospects such as expansions, mergers, management changes, or any other developments. Prices tend to rise when companies show promising results and vice versa. When these reports are first announced, stock market trading platforms increase their margins to protect clients from market price movements. If you’re a new trader, keep in mind that these stock adjustments usually last for up to six hours after a company’s report is initially released.
Global political events
Stock prices can also oscillate depending on the international political climate. Elections and new policies usually cause high price volatility. Stock prices fall when major catastrophic events happen, leading to political unrest and even the risk of war. On the other hand, having a healthy government can motivate traders to invest, boosting stock prices upward. As shown, these political changes impact the stock market by influencing investor confidence. For new traders, the best advice would be to stay on top of the news and follow the stock trends before prices change drastically later on.
Inflation can dictate stock prices as it limits the buying capacity of investors. As high inflation causes the prices of goods and necessities to rise, investors are forced to reallocate finances that would otherwise be used for buying stocks. Inflation is also associated with a weakened economy, signalling investors to sell their stocks and invest in something more promising. When this happens, new stock traders are advised to sell their affected stocks and look into diversifying their portfolios. Keep the stocks that are favourable while also exploring non-stock inflation-protected assets, such as real estate, until inflation rates return to normal.
Interest rates, which central banks regulate, affect stock prices by influencing company performance. When interest rates are low, companies can borrow a significant amount of money and yield more profits. On the contrary, high-interest rates would mean more company expenses and less earnings. Profit is usually a big factor for investors, and low results typically lead to many selling their stocks. This would cause prices to fall. One of the safest investments for new traders to make when interest rates are high is to invest in bank stocks. This is because, unlike other borrowing companies, banks earn more when interest rates are high through loans.
Stock prices can also be altered depending on exchange rates. These rates are also related to other aforementioned factors like inflation and political events. The value of a nation’s currency is a sign of its economy. When a currency depreciates, it means that an economy is weak, and this country’s companies are more likely to have higher expenses. Investors end up selling their stocks, and prices fall. On the other hand, stronger currencies help their companies earn more, encouraging investors to buy stock and increasing stock prices. Though this may seem worrying, these effects are known to only last for a short period. The stock market is bound to stabilise, and prices will return to their standard rates. New traders who wish to conduct long-term trading can simply hold on to their investments and wait for stock prices to climb once again.