In the next few articles, we shall have a discussion on the most important influencers on the stock market. Despite the complexity that one may see in the market, there is one thing to keep in mind. Namely, this is that stock markets represent peoples’ opinions and desires. All the facts and figures are merely abstractions of normal, day-to-day, human behavior. So, with all that out of the way, what are the main factors influencing the stock market?
The importance of investor perception
Investors will have a significant effect on stock market prices. After all, they are the main people who are trading stocks. There are a few things that can influence their perception of stock prices. The most important thing will probably be a company’s performance. As investor opinion changes, so do the price of the stocks. The more profits they make, the higher their stocks’ prices go. If they are losing money or stagnating, their stock prices will likely decrease. The stock markets function with supply and demand, much like any commodity or security. The more investors invest in a company, the more desirable the stock is and the price goes up.
There are a few things investors look at to find about the performance of a company. These would mainly be their financial statements, in quarterly or annual reports. There is the balance sheet, which is all the liabilities of a company. There is the income statement, which is, well, the total income for a company. Governments require that public companies share such information by law.
Investors can delve deeper into analyzing such information if they want to. They can look at certain indicators to give them a better idea of what the information means. One of these could be the EPS (earnings-per-share). There’s also the P/E (price/earnings ratio), and the PEG ((P/E) / Earnings growth).
