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Factors that Affect Stock Market Volatility

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The stock market is very profitable market to invest in. It offers a lot of short term and long term opportunities for you. It is also very volatile, and there are many factors that can affect stock market volatility.

If you understand HQbroker Reviews what these factors are and how they affect the stock market and its volatility, you can garner greater chances of beating the market. Let’s see what these factors are and how they can affect the stock market.

Related Markets

As an investor, you should be always aware that the stock market is not the only market you can invest in. Other investors can choose other markets, such as commodities, currencies, Forex Online Trading or bonds, to pour their money into.

In fact, these markets can greatly affect the stock market and the volatility we can experience in them. The correlation of the stock market with other markets is not always direct, in which a rise in one market also means that the other market will also jump. Sometimes, a negative news in one market may mean positive for another.

Economic Stability

The stock market is generally reliant on economic stability as well as future growth. In times of economic growth, the stock market is one of the firsts that will benefit. On the flip side, it can suffer a lot in times of economic uncertainty.

Conflicts like war, geopolitical tensions, trade spats, or other such problems can cause the stock market to crash.

Price-to-Earnings Ratio

Many experts agree that this can certainly be a very effective guide when trying to gauge the future performance of the stock market.

According to them, once you see the share prices soaring pass their historical averages, you should start thinking that the stock is currently overvalued. Based on this, we can try to assess the current trend and hunt for a point where the stock will experience a correction in the future.

Interest Rates

Interest rates can be a huge factor for stock market volatility. Generally, higher interest rates aren’t well received by investors. Therefore, lower interest rates are more favourable. Lower interest rates can boost the economy, and they make lots of firms earn higher profits.

Moreover, many investors choose to invest in stocks instead of putting their money in the bank due to lower interest rates.

Investors’ Expectations and Emotions

Investors run the stock market with their mood and sentiment. In fact, this can be the single largest factor that can influence the stock market.

When investors receive good news, they would be optimistic and therefore will invest in more stocks. Meanwhile, if they receive a bad update, they tend to sell off their shares. Once the worst has already come and gone, the stock market can rally, even though the fundamentals are still low.

The Bottom Line

Knowing how the stock market can get affected by the above factors can be a great weapon for you to beat it, or at least gain some profits from it. However, factors other than these can also impact the stock market. In order for you to be updated of such factors, you must try to keep yourself in the loop.

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