History has always shown that the price of stocks and other assets become an important aspect of the Dynamics of the economy. It can also influence and become an indicator of the social mood. An economy that has the stock market on the rise is the only one that represents and up-and-coming economy.
In this article, you will come to know how several entities cause the Rise and fall of the current stock market.
Cause of rising in the current stock markets
The Limited supply of shares available-for-sale makes the bidders compete with one another for getting access to the shares. The more intense the interest becomes in the stock, the greater the number of bidders attracted to it. At the same time, the least interested current shareholders dedicate their time to selling their own stock. The potential buyers get higher bids for buying the stock. This allows the stock price to move up when the interest level in the stock.
When the stock is facing a decline, then there are fewer competing bids. The holders usually become more interested in selling the stock and lowering the winning bid price. Investors get new information regarding the stocks in a different pattern. So, they respond also in a different manner. The reactions are varied from apathy to panic to even Euphoria. Depending on the reaction, the bidders make a choice of buying more shares and hold the shares. Some of them even sell them. In this way, the current stock market price goes up.
The reactions then become incorporated into the share price that leads to hiking in the overall price. The change in the share price becomes information that is incorporated by the subsequent bidders. It forms the cycle of information- reaction-price move- information that becomes repetitive. In case the supply of a stock is limited and the interest in it is high, then the price becomes a very steep one. You can take the recent example of the Tilray. The company went public directly in the summer of 2018. All of a sudden it started reaching a peak price of $ 300 share.
Cause of fall in the current stock markets
Unexpected economic events, Catastrophe, or crisis lead to the downfall in the stock market prices. The September 29, 2008 event marked the largest point drop in the history of the stock exchange in New York.
When there is an extended Bull market, often you can see a fall in the price of the stock market. It leads to irrational exuberance and greed to drive stock prices to unsustainable levels. The prices then reach above the real worth of the companies when measured by the earnings.
Conclusion
At the basic level, it is the demand and supply in the market that determines the stock prices for the price times the number of shares. The value of the company earnings become the major factor in affecting the valuation of the investors of the company.
There are also other indicators that investors may use for predicting the stock price. Besides everything else, the attitudes, sentiments, and expectations of the investors also play a major role in affecting the stock prices.
