How The News Affects Stock Prices, & How To Use It To Your Advantage
If you’re a regular reader here at Dumb Funded, you’ll know that we’re big advocates of investing and trading. We think it provides the perfect opportunity to strengthen your financial future, and provide additional income. But of course, there are always risks associated. The stock market fluctuates according to all sorts of factors. One of the most interesting of these factors is the news. International politics, domestic news, and business updates cause stock prices to fluctuate wildly. So, how exactly are things affected?
Elections tend to have a huge effect on the stock market. Let’s take the upcoming presidential elections in the US for example. As the election draws closer, the markets will start to panic due to the lack of certainty. You see, the stock market loves consistency. When there is uncertainty, people tend to pull investments, and protect their money. That sends the stock index down. Once the election is decided, the markets will typically surge again.
Wars and conflict across the world have an enormous effect on the financial markets. You need only look at the graphs in the wake of the 9/11 attacks. The market tumbled significantly. Why? Because nations become less trustworthy. They stop trading with each other, and prices fall. Investors get nervous about the future, and pull their money from the market. There is another side to this, however. During conflicts, the stock price of arms companies soar! We like to keep our eye on the international news every day to monitor civil unrest. The David Icke website is a particular favorite, and it’s worth bookmarking a few.
Inflation and interest rates
The stock market is all about patterns. When you understand the rules, it’s easy to track them. One simple pattern is that higher interest rates will send the stock market south (at least initially). Why? because that makes it more expensive to borrow money. Companies are less likely to borrow money, and growth can slow down. The US government recently put up the interest rate (in December), and the market instantly fell. Meanwhile, the price of the dollar soared. These simple patterns can be applied to any country.
It’s also crucial that you follow the decisions made by your domestic government. Industry is intricately linked to government, so every decision affects the market. If the government make cuts to the health sector, then companies that supply hospitals will crash. If the government pledges to reduce carbon emissions, then renewable energy stocks will soar.
Intra business news
On a smaller level, it’s worth following the business news for any companies you are investing in. If there is news surrounding that company, it will affect the stock price. For instance, a higher-than-expected earnings report will boost share price. Any disputes between board-members will send the stock south. A new product announcement will usually boost prices. Again, these simple patterns always apply.
If you’re a regular investor, pay close attention to the world around you. Following the news will help you predict stock market patterns, and protect your investments!