Why Stock Market is rising when Economy is falling?

Why Stock Market is rising when Economy is falling?

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Created By Admin Last Updated Wed, 02-Sep-2020

Here we will discuss why the stock market is high in-spite of low economic activity. But before that, you have to understand the basic concepts of factors that affect the price of any stock. There are various factors which decide the upward or downward movement of any stock price. Let’s take some of those factors and compare those with the current situation.

1. Supply and Demand

Like other commodities, the price of a stock is decided by the supply and demand of such stock. If demand is high, then the price would rise or vice-versa.

2. News relating to the Company

Any favourable news can move the stock price up to and any negative news can become the reason for the falling of the price of such stock.

3. Market Sentiments

If the majority of traders in the market made a particular perception regarding any company, then its stock would behave on the basis of market sentiments.

4. Management Profile

Management profile plays an important role in the sustainability of any corporate. If management formed of efficient leaders, then it is a high possibility that the company would perform better in the long run and that`s why it affects the price of the stock. Imagine if Warren Buffet becomes the director in any listed company than the price of its stock would rise as a result of strong personnel in the management board.

5. Financial Performance

The financial performance of any corporate plays a crucial role in the movement of the stock price. If a company publish a profit showing financials then the price of such would rise and if does not perform better and incurred losses, then the price of such stock would fall.

6. Economic Factors

 Economic factors also play an important role in determining the price of the share. Economic factors include interest rate changes, financial outlook and inflation. For e.g., if the interest rate and inflation rate go up, and the economic outlook is poor then the share price will likely to come down.

There are various other factors also which also plays an important role in determining the share price. Other factors include:

·         Government Policies;

·         Market Capitalization;

·         Management Profile;

·         Political Factors;

·         Availability of credit;

·         Returns offer by other markets;

·         Level of Foreign Investment;

·         Stability of Government;

·         Future Sustainability;

·         Return offers by other Markets.

Now when we understood the factors that affect the stock price let`s discuss why at the time of pandemic the stock markets are performing that much better.

First of all, we have to understand the fact that business activity, travel, tourism, trade and manufacturing has been stopped in the mid-March. So, basically in March month only for 15 to 20 days, all the commercial activities were stopped due to the pandemic and lock-down for the same. But it is related to the stock price? To understand that we have to move forward to the second fact.

The second fact is that at present, all the listed companies are publishing their quarterly and annual financial results. The quarterly and annual financial results published are up to the date of March 2020. That means companies declared their financial result for the year 2019–20 which ends on March 31 and quarter results that includes the months of January, February and March.

Finally, if we combined the first two facts then we come to know that the latest financial results published by the companies do not reflect the damage caused to the Companies. The real impact of novel coronavirus pandemic would be seen in the upcoming financial results. After there are huge chances that the stock market would correct itself and price would move according to the real position of the Company.