Some Factors that Affect Stock Prices

Even if a stock market manages to close out a week on a positive note, with the index up some considerable points, share prices can suddenly succumb to some corrections along the way the following week. What makes the market plunge or shoot up in a moment's notice?

Many factors affect the stock market. Local markets are affected both by local and world developments. Even climate change can affect stock markets. The world market also shakes when local markets convulse. Below are other factors often significant in gauging the stock market.

The current investor outlook is one factor. When investors see a quick recovery of the market after a minor down trend, the stock market can further rebound to a vibrant robust. A record-breaking run of Wall Street, for instance, can also help a market. It can improve the buying sentiment of some investors.

But relatively low volumes account for nervous and reluctant investors. Even if the market report the previous week closed on a note of confidence, low volumes - especially if it is the lowest in a month or two - makes the sustainability of last week's gains questionable.

Foreign selling may render a stock market trading with extreme volatility and may eventually close on the low side. Foreign selling is when a stronger market influential to the local market is deemed expanding faster than expected and foreign exchange bargaining is like crazy.

Fears about the local national bank siphoning off the excess liquidity in the fiscal system is another rocker of the market. Such speculation causes panic share selling or abandonment of the market altogether.

Threats that a nearby giant economy is on the verge of overheating or collapsing is another factor. It can cause local stock prices to devalue and send investors plunging head-long to sell down. Like, recently, when lots of Asian markets were brought down due to speculations of another China market melt down. It was a good thing that it was blown away temporarily by Asia's strong market recovery.

A potential correction of share prices as reflected in a major index, as in the Dow for instance, is also an issue. This is especially after a major breach in reports. A high previous report will boost confidence in investors. But that same momentum will send shivers down their spines when a correction is suddenly announced - sudden changes are one of the shoo offs.

Good periodic cash dividends are good. If local companies have improving cash flow, say, the past two years, and announce generous cash dividends, this can be an indication of confidence in their cash levels. This can limit the downside with a regular annual dividend payout.

Quick market recovery, low volumes, foreign selling, excess liquidity, speculations on a stronger market, major corrections, and habitual cash dividends - these are other factors that affect the stock market. How they affect depends on how the economy has been performing.