Analyzing Mechanics Behind the Stock Market’s Heart
July 20, 2008
Have you ever wondered what make the stock market rise and fall? If you watch the news at all, you will have seen the stock market prices tumble into a deep red sea one day, while rising through the clouds the very next day. Why stock market prices behave in such a way is a complex question with an even more complicated and intricate answer.
There are many factors that affect the price of stocks: Included is inflation, interest rates, domestic political unrest, war or terrorism, crime, fraud and oil or energy prices to name but a few.
All of these factors will drive the price of the stock market up or down. However regardless of these factors, the price of stocks is liquid and it is determined by how much buyers are prepared to spend and how much sellers will take for their stock.
Simply Demand and Supply — that which breathes life to the Stock Market. Understanding this concept can be a strenuous task, as it takes years of hard work to truly champion the seemingly endless abyss of market analysis.
Usually, to tame the rate of inflation, the federal government hikes interest rates. While this slows the inflation rate, it also raises the interest in small lending institution stocks (these are guaranteed by the government, thus VERY attractive here). This in turn moves investors away from equity stocks in lieu of the guarantee available with the small lenders. Risk here is lower, obviously.
This affects stock prices in several areas of the market. What happens is this: say a stock was selling at $20 per share before the interest rate went up from 5% to 6%. So the stock price is figured like this: 1/. 05= $20. After the hike, the price is now down to $16.67 per share or 1/. 06. This represents an almost 17% drop. Taken right across the market, this can adversely affect many other stocks as well and drive the market down temporarily.
A spike in oil prices can and will affect auto prices, food prices, gas prices and many others, thus effectively pushing inflation upwards. This presses the government to raise interest rates and we have the example above all over again.
War abroad can affect the market, too. A recent example is the war in Iraq, which has driven oil prices up to unprecedented levels. We have all seen the exorbitant gasoline prices that have been the result, but now we are seeing hikes in home lending, grocery prices and transportation costs also.
So as you can see, there are many scenarios that can unfold and affect how the stock market prices rise and fall. All these factors play out together in the rise and fall of the stock market. If you watch it closely, you can pick out the trends and accurately predict price hikes, interest rate increases or when inflation will occur again.
Another factor in how the stock market rises and falls is foreign currency rates. As a particular currency fluctuates, stock prices in companies based in that country will react accordingly. When the Japanese yen falls, so does interest in Japanese technology stocks. Conversely, if the US dollar falls to dangerous levels, our government simply prints some more paper money and places it in circulation. This, in my personal opinion, creates a false sense of security in the economy.
US Fed Printing Money to Avoid Immediate Banking Collapse = Higher Long-term Rates
However you look at it, stock prices affect how we live each coming day. All aspects of our daily routines are affected: Grocery prices, gas prices and the cost of living just to name a few. So watch the stock market closely. It affects you whether you know it or not.
Remember, what makes or breaks a Winner is passion for the simplicity, not the lust for the rewards. Years of endless dedication to analyzing price highs and lows, tireless hours spent searching site after site for the latest news headlines — searching for that one instant mouse click that could skyrocket your portfolio. Your heartbeat raises, your palms become sweaty, you look at your computer screen and you smile. Why? Because you realize you have now become what you were meant to be: An Investment Mogul.
Investing is not just a way of making money for me — Investing is my passion, my desire, my love in life.
What does investing mean to you?
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July 20th, 2008 at 10:44 pm
[...] Original post by [Technorati] StocksHaven dot com Tag results for stocks [...]
July 20th, 2008 at 11:04 pm
[...] Original post by StocksHaven dot com [...]
July 20th, 2008 at 11:13 pm
[...] Original post by [Technorati] Tag results for stocks [...]
July 20th, 2008 at 11:50 pm
[...] Original post by StocksHaven dot com [...]
July 21st, 2008 at 7:15 am
What does investing mean to me? It means participating in a process that will help build my family’s future while providing a certain level of security and comfort. It’s a complicated process that takes a lot of thought and effort to understand - but if it was easy, everyone would be doing it, right?
July 21st, 2008 at 4:22 pm
Hello Jim
I was just wondering, is http://www.highgrowthstock.com your blog? If so you’ve done a marvelous piece of work. Keep it up, and I look forward to your warm comments. Indeed as I begin to step into the next age bracket, I am sure it will become a means of sustainability for me and my family. As of right now, it is merely a passion, while it does earn me a nice income, it is simply my love for investing that keeps me going. Some interesting Warren Buffet Bio’s you should check out that speak of how he lives such a simple life to the point where he gave none of his fortune to his kids. For him its not about the money, it’s about the challenge!