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Here Are The Major Factors Impacting Your Stocks!

Jun-28-2019Blog by – Mr. Ashish AjmeraRead Time: 3 Min.Word Count: 81487Here Are The Major Factors Impacting Your Stocks!
When legendary investment guru JP Morgan was asked what the stock market was going to do next, he had simply responded "It will fluctuate” While that does sum up how the financial markets and stock prices tend to normally behave, for a common investor, it is useful to be aware of the factors affecting stock market which drive the stock market prices higher or lower. While it is nearly impossible to predict which way a particular stock might drift, certain critical factors like financial performance of the company, industry specific updates, global market sentiments and economic and political developments would definitely have an impact on the stock price of a particular company.

Here is a detailed list of such factors affecting share prices:
Operating profit: This is the most prudent measure of how a business is doing.Operating profit is the profit from a firm`s core business operations, excluding deductions of interest and tax. It is also called EBIT and sums up as a financial measurement that calculates how much profit a company makes from its core business activities. Stock price of a company closely tracks this measure.

Performance of sales: Consistently rising sales indicate sustained increase in revenues for a business. It also indicates good market penetration, rising demand for company’s products and services and could also possibly reflect good liquidity conditions for the company. If the company manages to keep its expenses under check, then rising sales would automatically lead to an improvement in profitability.

Announcement of dividends: Dividends mean a sum of money paid regularly, typically annually by a company to its shareholders out of its profits or reserves. Blue chip companies are known for benefitting their investors over a period of time bydistributing a reward from a portion of the company`s earnings. Dividends are decided and managed by the company`s board of directors, though they must be approved by the shareholders through their voting rights.

New product launches:For any company, in order to sustain and grow in a competitive market, it is essential to come up with new products every now and then. This helps in creating a loyal base of consumers over the years and helps in pushing up the sales by offering more visibility to the company.

Industry developments: Broad changes taking place in the industry generally affect all the companies in the industry the same way. However, the stock price of a company will benefit from a piece of bad news for its competitor if the companies are competing for the same market.

Consumer behavior: Consumer behavior determines how individual customers, groups or organizations select, buy, use, and dispose ideas, goods, and services to satisfy their needs and wants. It broadly refers to the actions of the consumers and the underlying motives for those actions.Such changes tend to impact demand for certain products and services in the market.Some of the important personal factors that influence the buying behavior are lifestyle changes, incomes; age etc.

Policy changes: Regular changes taking place in policies like income tax changes, government spending patterns, new trade policies, export import norms etc can affect businesses in a sizable manner. While it is true that most of these changes are likely to impact the industry rather than a particular company, how a particular business is placed in terms of dealing with such policy change would determine how stock market prices behave.

Political stability: Markets generally tend to love political stability. A majority government having plenty of support can bring in economic reforms with comfort and also ensure accelerated decision making, thereby creating a robust business environment. This leads to an increase in business and consumer confidence and can affect stock prices in a positive manner.

Global commodity prices: Trends in global commodity prices can influence the share prices of business that are linked to such commodities either in the form of raw materials or finished products. If a company is using imported raw materials in its operations, then rising prices of such materials in global markets can hurt its profitability.

Performance of major economies: The world has become a heavily interconnected place and how the major economies are doing would invariably have an impact on stock markets across the globe. This is why what the US central bank – the Federal Reserve is doing with its interest rates has become one of the most critical factors affecting stock markets in recent years.

Conclusion:

The above list of factors is not conclusive and there could be so many other variables which can impact the stock prices. A sudden downturn in global markets, rising geopolitical tensions, currency crisis etc can also inflict a short to medium term response for the markets. However, in general terms, it makes sense to track the above factors in order to get an idea about where stock prices are headed before taking any investment decisions.

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