11 Factors that Affect Stock Market Prices

Stock Market Price Factors
11 Factors that Affect Stock Market Prices

A stock market is a volatile place. Volatility is a measure of the potential price variation.  The same volatility helps investors earn money from the stock market. For example, an investor buys a stock and buys when its price increases to profit from the price difference. But the same volatility is a risk that could also cost the investors. 

What are the Factors that affect Stock Market Price?

There are 11 critical factors that affect stock market prices. They are News, Trends, Liquidity, Inflation, Market Sentiment, GDP, Unemployment, Incidental Transactions, Interest rates, Supply and demand in Stock Market, and Trade wars.

Stock price refers to the current price for which a buyer purchases a share of stock from the seller. The stock price depends on a number of factors, however, the demand and supply in the market are the two deciding factors that determine the price of the stock. Any factor that affects the demand and supply in the market affects the stock prices as well. According to the prominent economist Adam Smith, it is the ‘invisible hand’ that ultimately drives and decides stock market prices. The invisible hand refers to the unseen forces that drive the demand and supply in a free market to help the two meet and reach an equilibrium. These forces are unobservable, and therefore, there exists no clear-cut formula to determine the factors that will affect stock market prices.

However, there are a few indicators that provide information about how stock prices tend to behave. An indicator is a tool that investors and traders utilize to analyze financial data in order to predict how a factor will affect the stock market price. Market indicators use statistical formulas to predict future trends and prices in the stock market, taking into account the various factors that affect market prices. Stock market price factors are those forces that can affect stock market prices. Stock market price factors can include fundamental factors, technical factors,  sentimental factors, or other external factors.

Factors that affect Stock Market Price
Factors that affect Stock Market Price

The most commonly seen factors that influence stock prices are inflation, perceived risk of the stock, socioeconomic factors, supply and demand relation, market indicators, technological changes, wars and international conflicts, natural disasters, level of trust in the legal system, corporate performance data, government monetary policy, regulations and deregulations, confidence index, greed index, changes in GDP and immigration. 

1. News 

“News” is newly discovered or unearthed information that is often important and has the capability to affect different factors. News can have a direct impact on the stock market, and the same is instantaneous. Let us explore some examples of news to understand this better.

Company results

Every public company is required to publish its results at regular intervals. This can have a direct impact on stock market prices. For example, if the results are good, the stock market prices increase on most occasions. But there are multiple factors at play. Not only do investors look for better results than the last comparable period, but they also need to meet the expectations of investors and analysts.

On the other hand, if the results are bad, the stock price goes down on most occasions.

These price variations may be temporary, but some could be permanent as well. As a result, price fluctuations following results news are more important to traders than to investors.

At the same time, stock markets can be unpredictable and can go in the opposite direction of normal.But either way, a price movement is almost always guaranteed.

Management changes

Personal changes could have an impact on stock prices as well. This is especially true when the change is in top management.

Management changes could have a positive or negative impact based on the situation. For instance, there could be a negative impact if the management change happens in a negative circumstance, like after bad results. At the same time, management changes could have a positive effect if the investors think the new personnel could bring about better changes in the company.


News about controversies always affects the stock market prices of a company negatively. An investigation into a company is one example of this.There is a chance for the investors to lose money on their investment when a company is under the microscope of an authority. Fearing this, a group of investors may sell their stocks in bulk, suffering some losses, to avoid a larger loss. This invariably decreases stock prices.

Even if the company is not guilty or the investigation is routine, the likelihood of the investment increases steadily in such a situation.As a result, when such news is released, stock market prices are likely to fall.

So far, we have discussed how news about the company can have a positive or negative impact on stock market prices. Now, let us look at how general news that directly or indirectly affects a company impacts the stock market prices of a group of companies.

Policy changes

Government policy changes could positively or negatively affect stock market prices, according to the news. We can see a positive impact on the stock prices if the news is positive to the economy in general, like a new plan to boost the economy, as the investors will react positively to it.

At the same time, stock prices could have a negative impact if the policy change has a negative impact on the market. For example, there could be a negative impact if the government decides to curtail foreign investments in India. 

On the other hand, some policy changes could have a positive impact on stock prices in certain companies and a negative impact on certain others. An example of this is policy changes related to natural resources. Let us suppose the government takes a call to curtail the use of natural resources to mitigate climate change. Here, companies that produce or sell natural resources could take a hit, while companies that sell alternate options like renewable energy could have a positive impact on their stock prices. 

A trend is a direction in which a particular pointer is moving. Trends are evident in physical factors such as wind direction and non-tangible factors such as support for a particular sports team. Trends are a strong force in the case of the stock market too. Trends can determine public opinion about a stock and strongly affect its price direction. 

For example, stock prices may increase when a famous investor endorses a particular company or stock. Stock price increase happened before the public now thinks investing in this stock is a good option since a famous investor said so. The majority of investors will be affected by the opinion, and at least some of them will start buying the stocks, creating a trend. A positive trend creates higher demand, and the sock prices will move up. 

On the other hand, the stock price could see a negative trend if negative news comes up. For example, let us assume that the company reported bad results in a quarter. Investors may start selling the stocks in fear that the company is not performing well. The sale in bulk will happen if the majority of the investors start to sell the stock, creating a negative trend. A negative trend can hit the stock price, and the stock prices can fall due to lower demand and higher selling pressure. 

3. Liquidity

Liquidity is a scale that measures how easy it is to sell a stock for cash. The sale of stocks happens in a stock exchange. The stock exchange is also a matchmaker as it connects people who want to sell to people who want to buy and vice versa. But a stock sale will only happen if there is a buyer when you want to sell. A higher number of buyers will help create a higher state of liquidity. It is easier to sell stocks in a higher liquidity state. 

Stocks are one of the most liquid securities.  Stock can easily be bought and sold through brokers, and there is enough demand most of the time. The amount of demand the stock has affects the liquidity, and the liquidity directly affects the stock price.  

The liquidity situation in stock markets is similar to that of a real-life market situation. Let us suppose you have a product that you want to sell in the market. You can sell it for a higher price if there are many buyers as the demand will be higher. But you may end up selling for a longer price when there is a lesser number of buyers. You may now have to sell the price at a discounted price to attract buyers. 

Lower liquidity means an investor will get a lesser price for the stock they want to sell because the number of buyers will be less in the case of stock markets. The investor may have to end up selling the stock at a discounted price when there are not enough buyers.

Liquidity will also affect the performance of market makers, and this, in turn, will affect the stock prices as well. A market maker is an entity that buys and sells a stock simultaneously to promote stable prices. A market maker is an important part of stock markets. Market makers make money by selling at a slightly higher price. But market makers will not be able to sell it at a higher price when there is less demand for a particular stock. Lesser demand will affect the liquidity and further decrease a stock price.

At the same time, the market makers will be able to sell the stocks for a higher price when there is higher liquidity, increasing the stock prices. 

4. Inflation 

Inflation refers to the rate at which the prices of goods and services increase. Inflation can also be interpreted as the rate of decrease in purchasing power. As the purchasing power decreases, the price of goods and services reflects an increase. Inflation creates an atmosphere of speculation about future prices. This makes the market highly volatile and subject to price variations easily. The effect of inflation on stock prices is complex and depends on the kind of stock. 

Value stocks tend to perform well during periods of inflation, with the price of value stocks having a direct correlation with the rate of inflation. Value stocks are stocks of companies that are currently being traded at prices less than their real worth. Inflation positively affects value stocks, as it drives the prices of the value stock to prices closer to what is believed to be their original worth. The price of growth stocks, on the other hand, falls with an increase in the rate of inflation. Growth stocks are stocks of companies that are in their growing stage. Growth stocks are priced higher than their current worth as it is assumed that they will outperform the market in the future owing to their potential. Inflation negatively impacts growth stocks as when the value of money falls, the company’s profit also decreases, thereby bringing down the stock prices. 

The impact and effect of inflation on stock prices, therefore, depends on the kind of stock. Inflation tends to have a stronger impact on the price of value stock when compared to a growth stock. The impact of inflation on value stock also tends to be positive, while that on growth stock tends to be negative. 

Perceived risk of stock 

Risk refers to the possibility of the actual returns from an investment being different from the expected returns. Risk can lead to the investors losing all or a part of his original investment amount. Perceived risk of stock refers to a trader’s or investor’s perception of the amount of risk that is involved in investing in a particular stock. Perceived risk is primarily a psychological factor that is driven by the investor’s fear of incurring losses through wrong investment choices and decisions. An investor’s perception of the risk that is involved in investing in a stock influences the price of the stock. Stocks and securities that are perceived as being less risky are more in demand and traded at significantly higher prices. Stocks that are perceived as involving more amount of risk, on the other hand, trade at lower prices. When the perceived risk of a stock is low, it can affect the stock prices positively by driving the prices higher. Meanwhile, when the perception of the risk involved is high, it can affect the prices negatively by lowering it. The perceived risk of a stock is, therefore a strong influencer that drives the stock prices.  

Socioeconomic conditions 

Socioeconomic factors refer to those social circumstances of an individual or a group of people that impacts and shapes economic factors. Socioeconomic factors include a range of factors from income and occupation to education, lifestyle, employment, etc. These socioeconomic factors have an influence on the economy, which in turn affects the stock market and stock prices. Companies that sell their stock on the stock market are dependent on the economic environment around them. When the economic environment is in an expanding phase, people are more willing to invest, thereby affecting stock prices positively. On the other hand, when the economy is in a struggling phase, people tend to avoid spending, thereby creating a decline in the demand for stock as well as stock prices. Socioeconomic factors are indicators of the current economic conditions. When the socioeconomic factors reflect distress in the societal circumstances, it is also reflected in the economic environment. Socioeconomic factors, therefore, play a fairly significant role in impacting stock prices. For example, a high unemployment rate indicates that a large section of the population is on the lookout for jobs but is unable to get it. This implies that the economy is in a state of distress and leads to a lack of confidence in the economy, which in turn leads to a negative impact on the stock prices. 

Supply and Demand Relation 

The law of supply and demand explains the relationship between the desire for a product or service, its availability, and its price. The law of supply and demand is the fundamental theory that regulates and determines the prices of stock and other securities in the financial market. When many people desire to buy a stock, the demand for the stock increases. This means that more people want to buy the stock than sell the stock, resulting in the demand being higher than the supply. Situations where the demand is more than the supply impact stock prices positively by increasing them. On the contrary, when more people want to sell a particular stock, the supply becomes greater than the demand, thereby impacting the stock prices negatively by driving them down. While high demand and low availability can drive the stock prices higher, low demand and high availability lead to a decline in the stock market prices. The demand and supply relation at any point is a very important and determining factor with respect to stock prices. 

Market Indicators

Market indicators are certain tools used by investors and traders to study and interpret financial data and make predictions about upcoming market trends. Market indicators apply statistical formulas and ratios on financial data from many securities to forecast movements in the stock market. There are two types of market indicators – those that measure investor sentiments and those that measure fundamental factors such as supply and demand. The forecasts made by a market indicator have the potential to make an impact on stock prices. When a market indicator forecasts a strong market, it impacts the stock prices positively by driving them up. This is because a strong market implies better chances of making a profit, thereby creating a greater demand for the securities. On the other hand, the stock market prices are impacted negatively if the market indicator forecasts a downtrend or weak market. This is because a weak market is indicative of a market where the supply is greater than the demand, thereby implying a very slim or no possibility of making a profit. 

War and International Conflict 

War and international conflict are external factors that have an impact on many socioeconomic conditions as well as other sectors such as international trade, travel, energy, etc. War and international conflict tend to affect the trade between countries and create shortages in commodities, thereby leading to inflation, where the prices of goods and services increase. The manner in which war and international conflict affect stock prices depends on the types of stock. Stocks of travel and leisure companies generally tend to fall during times of war and international conflict as these affect and place restrictions on the movement of people. Bank stocks and stocks of mortgage finance companies also portray a tendency to fall as the inflation that is created by the conflict tends to push the interest rates higher. Defense stock, on the other hand, tends to perform better in times of war and conflict. The increase in energy and crude oil prices, which is a commonly seen result of war, and the internet can also prove conducive to oil and gas stocks. It has, however, been observed that the effect of wars on most other stocks is limited and often short-lived.  

Natural Disasters

A natural disaster is a catastrophic event resulting from natural causes that create large-scale damage or loss of life. A natural disaster can include floods, earthquakes, hurricanes, tsunamis, landslides, etc. Natural disasters apart from affecting the environment and the lives of people, also have an impact on the economy. Natural disasters tend to cause massive damage to a nation’s economy. This impact on the economy is also reflected in the stock market. The highest impact on the stock prices is found to be on the day of the natural disaster, as the stock index falls. This impact lasts over the next two days, after which it declines, and the prices tend to rise again. Although natural disasters have a negative impact on the stock market, it is found to be short-lived.

The legal system refers to the laws of a country and the manner in which they are enforced. The legal system of a country also includes civil laws, civil courts, and other market regulators. The level of trust in the legal system refers to the people’s faith in the quality and efficiency of the laws of the country and their enforcement. It is the legal system that renders support to other systems in the country, such as the education system, the healthcare system, the financial system, etc. In the case of stock markets, it is the legal system that protects the rights of investors and traders as well as the companies whose stocks are traded on the stock market. By having clear-cut laws that place regulations on illegal and unethical trading practices, the legal system promotes transparency in transactions. A high level of trust in the legal system leads to more confidence in investors and traders to make investments. A sound faith in the legal system assures the investors of the laws that are in place to protect their rights. Such a situation is conducive to stock prices and impacts them positively. On the other hand, a lack of trust in the legal system can lead to a reluctance in investors and traders to make purchases in the stock market. This impacts the stock market prices negatively. 

Corporate Performance Data 

Corporate Performance Data refers to the set of data on the assessment parameters of a company. Corporate performance data primarily focuses on financial aspects pertaining to market performance and shareholder performance. The health of a company is usually reflected in its performance data. This information is used by analysts, investors and traders before deciding whether or not to invest in the stocks of that company. The demand for the company’s stocks rises if the company performance data reflects good stock performance. Such a situation impacts the stock prices positively. On the other hand, a poor stock performance that is reflected in the corporate performance data will lead to a decrease in demand and a subsequent decrease in stock prices.

Government Monetary Policy 

Monetary policy refers to the guidelines that are framed by a country’s government to control the money supply and promote economic growth. The monetary policy includes various strategies aimed at achieving economic growth, such as adjusting the interest rates or making changes to bank reserve requirements. Monetary policy is of primarily two kinds – expansionary or contractionary. Expansionary monetary policies are those policies that are aimed at promoting economic growth. Expansionary monetary policies include policies that reduce interest rates and increase the money flow. Contractionary monetary policy, on the other hand, refers to those strategies that are framed to limit or slow economic growth. The contractionary monetary policy includes policies that increase rates and limit the flow of money. Monetary policies affect the stock market and stock prices depending on whether it is expansionary or contractionary.  Expansionary monetary policies positively impact stock prices as it reduces interest rates and increases the money flow. Contractionary monetary policies negatively impact stock prices as they are designed to limit economic growth. 

Regulations and Deregulations

Financial regulations are rules or restrictions that are placed on financial institutions and their working and transactions with the aim of maintaining the stability and integrity of the financial systems. Financial regulations tend to be governed either by the government of the country or a non-governmental organization appointed for the purpose. Financial deregulation, on the other hand, refers to the removal of certain restrictions leading to a reduction of the power exercised by the regulating body. Regulations and deregulations tend to increase and decrease investment opportunities and thus impact the stock market and stock prices. Regulations impact stock prices negatively as more restrictions are placed on transactions. Deregulations, however, remove many restrictions making it possible for new companies to enter the market. Deregulations can boost the economy as businesses will no longer need to comply with restrictive measures that curb their development or impose restrictions on their pricing. Deregulations, therefore, favor better company performance and in turn, better stock performance. This impacts the stock prices, too, positively. 

Confidence Index

Confidence index is a measure of the level of optimism or pessimism in a consumer regarding their financial prospects. Confidence indexes can give insights into economic conditions and forecast purchase decisions consumers are likely to make. The confidence index is influenced by economic conditions such as inflation rates, unemployment rates, etc.The confidence index directly relates to the supply and demand relationship. A high confidence index reflects a high level of optimism in the consumers, which implies that they are likely to spend more money. This increases the demand for goods and services, thereby increasing stock prices. A low confidence index indicates a low level of optimism in the consumers thereby reducing their spending and creating a drop in the demand for goods or services. This results in a drop in the stock’s prices.

Greed Index

The greed index is a tool that is used to measure the predominant mood of the market. The greed index was created by CNNMoney along with its counterpart, the fear index to measure the two predominant emotions that are said to drive investor decisions. Greed and fear are considered to be two persuasive emotions that can coerce investors into making decisions against their better judgment. The fear and greed indices are sentimental indicators that give insight into the investor’s psychology and thinking. At any point in time, these indices can reflect how much money an investor is willing to spend on a particular stock. A high greed index indicates that investors are willing to spend more than the real worth of the stock. A high fear index, on the other hand, indicates that there is excessive fear in the minds of investors, thereby lowering the price of the stock from what it may be actually worth. A high greed index drives the stock prices higher, while a high fear index drives the prices lower. 

Changes in GDP 

Gross Domestic Product (GDP) is defined as the total value of goods and services that have been produced within a particular country within a specified time period. GDP serves as a measure of the country’s economic condition at any given point in time as it reflects the total production in the country. As the GDP reflects the economic health of a country, it plays a vital role in the demand and supply relationships. Any change in the GDP signifies a change in the country’s economic growth rate and impacts the demand and supply curve. The GDP thus shares a direct correlation with the stock market. A high GDP value means that the consumption of goods and services and cash flow are high. This leads to higher stock prices. On the contrary, a low value of GDP signifies that consumption is less and that the cash flow is also on the decline. Such a situation leads to a decline in economic growth and impacts stock prices negatively as well. 


Immigration refers to the movement of people to foreign countries for settlement purposes. Immigration in a country leads to an increase in the availability of manpower and labor, which is of an advantage to industries that are labor intensive. Labor-intensive industries are those industries that require a large number of laborers including construction, agriculture, manufacturing, etc. An increase in the rate of immigration leads to better performance by labour intrinsic sectors. Immigration, thus, apart from having an impact on several aspects of the economy such as employment rates, GDP, and income levels also impacts the stock market. In the case of companies in the labour intrinsic sectors, an increase in the immigration rates leads to a better company and stock performance and higher stock prices. A decrease in the immigration rates, on the other hand, leads to a decline in the company’s performance which results in a decline in stock prices. 

How are stock market prices determined?

Stock market prices refer to the price of listed securities in the stock market. Stocks are the primary security that stock markets list. Stock market prices are primarily determined by the theory of supply and demand. The supply and demand theory says that the price of a commodity will increase when there is higher demand and a lesser supply, and the price will decrease when there is a lesser demand and a higher supply. In the case of stock markets, the prices will rise when there are a higher number of buy orders and a lesser number of sell orders. Prices, on the other hand, will fall when there are more sell orders than buy orders.

However, millions of stocks are traded in the stock market every day, making it impossible to calculate supply and demand manually.Hence, stock markets have different algorithms in place to determine stock prices. An algorithm is a computer program that helps in resolving a problem automatically. Stock market algorithms will gauge the current supply and demand levels of every stock that is listed in the market and then price each stock. Stock prices change every second because stock market algorithms are able to calculate supply and demand in real-time and make changes instantly.

How do stock market prices go up?

Stock market prices go up due to multiple factors, such as higher demand, better news, positive market sentiment, etc.

Stock market prices are primarily determined by the laws of supply and demand. The supply and demand laws say that higher demand and lower supply make the price go up, and the same is applied to stock market prices as well.

Better news can also make stock prices go up. An example of good news for companies is better results. Better results mean there is more potential for growth, and hence, more investors will buy shares, which raises the price.

Market sentiment plays a critical role in stock market prices as well. A positive sentiment means more people will choose to buy the stocks, increasing their prices.

Why are stock market prices down?

Stock market prices fall due to factors that cause them to rise, such as lower demand, bad news, market sentiment, and so on.

Stock market prices are primarily determined by the laws of supply and demand. The supply and demand laws say that lower demand and higher supply make the price go down, and the same is applied to stock market prices as well.

Bad news can also make stock prices go up. An example of bad news for companies is bad results. Bad results mean there is a question about the potential for growth, and hence, more investors will sell shares, which hurts the prices.

Market sentiment plays a critical role in stock market prices as well. A negative market sentiment means more people will choose to sell the stocks, decreasing their prices.

Is it advisable to invest in the stock market even though the prices change often?

Yes. It is because price changes are the only way for an investor to earn from the stock market. The basic consensus of a stock market is to buy low and sell high. For example, an investor may buy a stock for Rs. 100 and sell it when the price reaches Rs. 200, making a profit of Rs. In the above example, a price change enables the investor to earn from their trade.

At the same time, there can be moments of higher volatility when staying away from the stock market is the best decision. Volatility is the degree of potential price change in the stock market. A higher level of volatility means a higher chance for the stock to grow up or down. At the same time, lower volatility means a lower chance that the stock price could go up or down.

Stock market prices could become harder to predict during times of higher volatility. Hence, experts advise staying away from the stock market when there is higher volatility.

Is it profitable to invest in the stock market?

Yes, investing in stock markets can be extremely profitable, but only if done correctly.Investors should ideally research the market thoroughly, identify their risk appetite and goals, and then time their investment to make the most of the stock market. –

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