Stock market fluctuations and the causes

Put simply, if demand for a stock is high, more people want to buy it and the price increases, and if demand is low, the price drops. These price fluctuations are influenced and determined by the perceptions of investors.

They monitor and follow the performance of companies and look at how much they’re earning, their actual value and how they might perform in the future. But there are also other factors at play when investors are assessing the values of company shares.

Anything that affects the confidence of investors and causes them to sell their investments can make the market fall. These could be political events, like Brexit, changes of governments or instability because of conflict. And when investors are uncertain, the markets tend to swing up and down more dramatically and more regularly.

As the virus developed into a global pandemic, this made investors uncertain. They reacted by selling and putting their investments into what were thought of as less risky stocks. This caused many of the stocks they sold to plunge in value.

Lockdown:

This unprecedented government action is having an enormous impact on how we live our lives and spend our money. It’s also had a dramatic effect on company profits and their appeal to investors.

There’s been almost no business and holiday travel as many airlines have grounded their fleets. Leisure spending such as eating out, going to events and visiting gyms is also at a standstill. And reduced demand in these sectors, and many others, makes them less attractive to investors.

After lockdown:

If investors feel optimistic that the economy can bounce back following lockdown, confidence will grow, markets will rise and we’ll experience a shorter period of uncertainty. Conversely, if investors lack confidence in the economy’s ability to grow following lockdown, the market – and people’s investments – will take longer to recover.

It’s difficult to predict how investors will react to economic uncertainty but you can get a sense of market confidence, and so what could happen by keeping up to pace with the latest views across the press and financial publications.