Over the past 100 years, there have been several ups and downs in the stock market. Although it’s not always easy to pinpoint the reason behind these ups and downs at any given time, several factors contribute to the changes.
Why does the stock market go up and down? What or who is causing them? In this post, we’re going to give you a basic overview of some forces behind the ups and downs.
The Stock Market is an Auction
You need first to realize that the stock market is an auction, with one agent willing to sell its ownership, while the other agent wants to buy ownership.
These sellers and buyers can be individuals, institutions, corporations, governments, or asset management companies that are managing money for private clients, index funds, mutual funds, or pension plans.
Trade is matched when the two agree upon a price becomes the new market quotation. In this case, where buyers outnumber sellers, this tends to push the price upwards, increasing the market value at which investors can sell their shares and enticing investors who were not previously interested in selling its shares to do so.
On the other hand, when sellers are more than buyers, there is plenty of stock available and whoever willing to sell its shares takes the lowest bid.
Other important things to grasp:
- Demand and supply in the market determine stock price.
- Theoretically, earnings affect investors’ valuation of a company,
- Other key indicators that determine stock price include Market Breadth and Market Sentiment.
The stock value doesn’t move much on a typical day, but you’ll see prices go up and down by a percentage point with occasional massive swings. In most cases, investors like to buy stocks when the rates are low.