A fight raging on Dalal Street there’s. The Bulls are searching for a market bottom and the Bears are saying the selling will continue. Both camps are making their point with a plethora of facts, fiction and fluff. How can we slice through the flack and focus on what’s really going to happen?
Three Powerful Forces Driving the Market
Astute investors know three powerful forces drive the stock market. These forces are known to everyone, but are often misunderstood. They are related, but independent. They are measurable, but controversial. They convey the affects of all that happens, and ultimately determine the fate of the market.
1. Corporate Earnings
When a major event such as an assassination, earthquake, or international financial meltdown occurs, traders instinctively speculate on if the event shall help or harm the shares they own. If the event appears more likely to help corporate revenue, prices rise. Conversely, if the news headlines is perceived to end up being harmful, prices fall.
The bug-a-boo of a solid economy is inflation. Inflation, of training course, causes raw material, provider and labor costs to improve. Unless an ongoing firm increases efficiency and raises prices, income narrow and earnings go down.
Rising inflation rates ultimately push stock prices down. It not only lessens the value of financial property, it erodes the purchasing power of consumers. Remaining unchecked, inflation destroys monetary stability and prospects to a poor economy.
3. Interest Rates
The Federal Reserve is charged with the responsibility of maintaining monetary stability. It fulfills this task by controlling the money supply. When the Fed sees inflation increasing, it tightens the money supply and interest rates go up.
Ironically, higher interest rates raise costs. It stifles expense, weakens the economy, hurts corporate revenue and network marketing leads to a Bear marketplace eventually.