Market Forces: How Do They Shape Market Trends?

From time to time, investments may seem like they’re all based on luck. Especially for small-scale investors, the way your investments change in value may seemingly be based solely on the overall performance of the market or based on random changes.

Experienced investors, though, know that there are certain market forces that impact the values of our investments. These investors know how to spot these forces in play and how to adjust their investment strategy to respond to these changes.

Read on to find out about some of these market forces and how they shape market trends, so you can be a more successful investor.

1. Government

The government can hold a lot of power over market trends. For starters, the monetary policy of the government can impact stocks based on how interest rates change. These policies usually have a large impact on the market as a whole.

On the other hand, government policies can also impact certain industries. For example, if a tariff is placed on a certain import, some companies’ stock will be adversely affected. It is important to stay up to date with the news to monitor which industries may be affected by these changes.

2. Speculation and Expectation

Ultimately, the financial system is all based on a structure of speculation and expectation. Investors tend to invest in companies or industries that are speculated to be successful in the near future. For example, investors may want to invest in more retail companies around the holidays.

Speculation and expectation can have a large pull on the market. When a certain company or industry fails to meet expectations, stocks can be negatively impacted.

The market also responds to expectations of the overall economy. If economic growth is less than what was projected for the economy, investors may pull their money out of the market, causing a lot of hurt overall.

3. Supply and Demand

Supply and demand are the most basic economic forces, and they have easily the greatest impact on our entire economy. Supply and demand create a push-pull effect of prices, and they have that same effect on our stock market.

If a stock is heavily demanded, the price of that stock will rise. For example, Apple’s stock may be in increased demand after the announcement of a groundbreaking new piece of technology, as investors will assume that many consumers will buy into this tech.

Are You Ready to Spot These Market Forces

The best way to keep up with these market forces is by reading the news. Many investors gather their information from news articles that relay information that may impact their investment.

Be sure to be on the lookout for updates on individual companies, their actions, and their growth. When it comes to the market as a whole, keep an eye on the economic growth of the country. Understanding the monetary and fiscal policies the government implements is also a key factor to account for.

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