Predicting stock prices is a challenging and demanding task that seems impossible. However, economics is the main driving factor behind them and can be used to determine their movement. It can serve as a good theme for your economics documents. If you need economics assignment help, try reaching out to experts. This article covers ten tools that economists use to predict stock market movement. However, you may find it challenging to understand the logic behind them. Thus, you need knowledge of economic factors for better relevance. Read further to find them out.
Important Economic Factors That Move Stock Prices
Economic factors play an essential role in controlling the movement of the stock market. This article covers ten critical tools to help you understand the stock markets.
GDP
It is an acronym for Gross Domestic Product and measures the value of all goods and services produced within a country. However, any deprivation is not considered, no matter the type of asset. You can calculate it by adding up the market prices of all final goods and services produced in the domestic territory of a country. Moreover, it is essential in the stock market because if GDP goes up, then there is more scope for companies to make profits. This increases the company’s sales, and then its stock prices go up.
Fiscal Policy
It refers to the government’s taxing policies based on the money spent. Governments keep adjusting their tax rates to stabilize the economy. This is essential because adjusting the taxation rates can increase a country’s economic performance. Lower rates directly affect the dividends investors earn as they reduce the earnings per share. Thus, lower rates result in excess money in the market and inflation.
Monetary Policy
It is an instrument used by the country’s central bank, i.e., the government’s bankers. It decides the interest rates for different kinds of loans, bonds, and debentures. Moreover, the rate of return on equity also matters, along with interest. It affects investors’ choices regarding the stock market and bonds. If both increase, then a stock’s earnings per share will be higher.
Saving Rate
It refers to the amount households save after deducting expenses from their income. Higher saving rates result in the flow of significant funds into stock markets, it becomes bullish, and prices soar very high. In contrast, a lower rate results in fewer funds in the stock market, and it becomes bearish, and prices will take a dip. However, it is a factor that any person or government does not control.
Trade Deficit
It is a situation that arises when a country imports more foreign goods than it exports to them. In other words, the money spent on purchasing outer goods is more than you earn by selling domestic products. This leads to cash flowing outwards to foreign countries, resulting in a weaker economy. Thus, the profits of domestic companies will be lower, and stock prices will go down, resulting in a bearish market. You can include this topic in your economic assignments for better justification. If you get stuck with the writing, you can seek Assignment Help London UK from experts.
Exchange Rate
It refers to the cost of a single national currency unit upon conversion into US dollars. Moreover, it strongly influences the national economy, which, in turn, affects the stock market. The export rates and exchange of services depend on the exchange rates. For instance, if the exchange rate is high, it will be easier for foreign countries to purchase your products, boosting your economies. Thus, there will be more cash flow in national markets, and stock prices will soar.
Earnings Base
It is a way of calculating the net worth of a company based on its profits. Although this factor has many alternatives, such as analyzing FFO (funds from operations), it remains the best. Moreover, along with this factor, you should analyze the free cash flow per share. Thus, ensuring that you don’t depend solely on this factor. It has a direct relation with the stock prices of a company.
Inflation
The rise in prices of goods and services is known as inflation. It refers to the fall in the exchange value of the national currency. This factor is significant in the technical analysis of a stock. Additionally, it has an inverse correlation with the prices per share of a company. In other words, if inflation rises, the stock prices dip, and the market becomes bearish. This makes sense, as people would have to spend more for dairy products and survival; this will reduce the saving rate.
Trends
Trends are used extensively to determine the movement of a stock price based on its candlestick chart. If it is going up, then it can gain momentum and go even higher. It is due to a fact that experts believe in, that is, “Success invites success.” The popularity of that stock acts as a cherry on the cake, and the prices go even higher. However, there is an opposite trend sometimes due to the involvement of different market factors.
Liquidity
Liquidity is an essential factor that is often overlooked by stock market investors. It refers to the percentage of cash that is readily available for expenses. Moreover, it is equally essential for the company as well because low liquidity can make it more prone to being sold when a calamity hits it. The reason is it doesn’t have any extra cash reserves to pay off the expenses and will have to either sell its assets or the whole company. Large-cap stocks have high liquidity, and, likewise, low-cap stocks. Moreover, trading volume is a substitute for liquidity and also serves as a tool for corporate communication. It refers to the amount of attention a company is getting from investors.
Conclusion
This article covered ten important economic factors that help you understand the stock market movement. If you have the correct information about them, it can be a game-changing factor for you. It will enable you to determine if the stock is about to take a dip. Moreover, this topic can serve as an excellent theme for your economic-related document. However, if you need any economics assignment help, then search for experts at various online platforms. Apart from that, be sure to bookmark this article if you find it helpful for future reference.
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