Economy’s health has many indicators, and the share market is one of them. Any up or down in the economy influences the share market like slowness in the economy. There are many economic factors which bring a notable change in the evaluation of stocks. Among them, inflation or deflation, changes in interest rates, happenings in global markets, and confidence and expectations are the notable ones.
Here we see how these four factors affect the share market.
In a particular period of time, any rise in the services and average price of goods in the economy is defined as inflation. Share market affected by any rise and fall in the inflation. In high inflation, it takes them many months to pass on higher input cost to consumers. Impact of inflation on the economy and stock markets is different, so it confuses the investor. Inflation affects their savings, which tend to hold less cash. By holding less cash, it tends them to invest less in the stock market. Share market is impacted by the influenced interest rate policy also. The rise in prices is inflation but when the prices continuously go up it becomes trouble. The high rates tend to bring down demand and reduce overall sending.
- Interest rates
Share market is affected by the change in interest rates. If the key policy rates increase it means that investors will not be able to borrow money as they were borrowing earlier because borrowing becomes expensive. For compensation, the company starts cutting their expenses and laying off workers. This all adds up to cause a dive in share markets. When the repo rate goes up, it leads to higher loan repayment cost. This rising cost reduces the net profit, which can be seen in the share market. Lower interest rates attract more investors and tend to the economic growth.
- Global markets
Share market is affected in a number of ways by the global economic trends. In the time of global recession, companies are incapable of selling as many goods overseas as they used to. This affects the revenue and by this share market is affected. If overseas markets begin to fail or observe a sharp dive, then it affects the share market.
- Confidence and expectations
The mood of the investor is a key factor. According to the news they buy or sell the shares. Share markets can start to rise in the depth of the recession. Share market is totally dependent on the investors, they can change the worst face of the market and share market can rally.
Share market is affected by many factors but the above four are some main factors which we discussed. In the share market, many points are considerable, which fluctuates due to the economy. The investors can change the worse part of the share market by investing in it.