As per Investopedia, Stock Market is where Individual and Institutional Investors come together to buy or sell shares. Share prices are set by supply and demand in the market as buyers and sellers place orders. But certain factors drive the stock market upward and downward in the short term as well as long term. Let’s discuss some of them in this article.
Factors that Impact Stock Market in Short Term:
1) Media Coverage:
- The first factor which largely impacts the Stock Market in Short Term is Media Coverage.
- The Media Coverage whether News Media or Social Media on the stock also plays a decent role in the movement of ant stock and hence the stock market as well.
- Is Media Coverage on the stock and the whole market is predictable? The Answer is Quite Simple i.e., No, because, there is no surety that how Media will react to the concerned matter.
2) Brokerage House Report:
- Next to Media Coverage, it is the factor of Brokerage House Report which very well drives the Stock Market.
- Brokerage Houses issues Short Seller Report or the Call Report for the stock which is quite unpredictable and hence the market reacts to the stock once this report is out.
3) Economic Data- GDP, Inflation:
- The Economic data related to GDP figures, inflations also play a vital role in impacting the stock market in the short term.
- If the economic figures are good enough, it will take the stock market on an upward trend while the scene goes opposite, if these numbers are not up to the mark or expectation.
- In this case, also, it is very hard to exactly predict the stock market movement, but somewhat one can estimate it too.
4) Federal Reserve News:
- Nowadays, even the news from the Federal Reserve, the Central Bank of the United States also impacts the stock market in our country in the short run.
- The activities of the Federal Reserve impact a lot on the Indian Stock Market in Short-run, and this factor too is unpredictable. The impact of the activities and news of the Federal Reserve can only be assessed once the event takes place.
5) Insider Trading:
- If there is Insider Buying or Selling in any stock, then there could be an impact on stock prices.
- It is also unpredictable.
6) Public Investor Presentation:
- The companies release investor presentations of the results for their investors-public/analyst in which the company comments upon the performances and the future outlook as well.
- In the shorter duration, this investor presentation can cause an impact on stock prices, but in a longer time horizon, the actions of the companies matter a lot.
- This factor is sort of predictable.
7) Private Investor Meeting:
- Lots of Companies hold Private Investor Meetings with the Big Research Houses like Morgan Stanley, HSBC, etc. where Promoter and Key Managerial Persons (KMP) of the companies meet up with these research firms and discuss various matters related to the company.
- This factor unlike the other ones is unpredictable and can only be witnessed post the issuance of the report from these firms.
8) Beat/Miss Estimates:
- Research Houses, Brokerage Firms, etc. issues the estimate reports of the companies performance in the particular quarter/year and it does have a quite significant impact on the stock prices in the short period.
- If the performance of the company beats the firm’s estimates, the stock prices perform positively, but this could happen oppositely if the stock misses the estimates.
- This factor is too unpredictable in the short term.
9) Acquisition/Merger News:
- The News of the company regarding the acquisition or any mergers have a great impact on the stock prices in the shorter duration. But it is hard to predict the extent of the impact on the stock price movement.
10) Changes in Interest Rates:
- If there are changes in Interest Rates, it greatly affects the stock prices especially stocks related to Banking and NBFCs in the short term. This too is unpredictable.
11) Government Regulations:
- If there is any arrival of Government Regulations then it can affect the Stock Prices positively as well as negatively depending upon the rules and regulations which have been rolled out and this is completely unpredictable.
- Politics also have a major impact on stock price, but this too is unpredictable.
13) Fund Flows:
- The inflows and outflows can also impact the stock market movement, and nonetheless, it is too unpredictable.
14) CEOs Interviews, Tweets:
- Market tries to anticipate the company’s outlook via the interviews of its key persons like CEO etc., or their tweets, etc. this could have an impact on stock price but is finally unpredictable.
15) Competitor News:
- If there is any news (positive/negative) with regards to a competitor of any stock, then there will be some kind of impact on the stock price as well. This too is unpredictable.
Factors that Impact Stock Market in Long Term:
1) Revenue Growth:
- It is one of the important factors which can impact stock prices in the long term.
- If the trend of revenue is positive or negative, accordingly one can sort of predict the company’s performance.
2) Profit Growth:
- There are two types of profits in the company- Operating Profit and Net Profit.
- If the Operating Profit along with the Operating Profit Margin (OPM) is in the upward trend, then it shows the operation efficiency of the company and hence presents the scenario of Operating Leverage taking place in the company. It is a positive sign for the company.
- After Operating Profit, if Net Profit and Net Profit Margin is also improving with the period, one can typically predict the growth in the company.
3) Sector Outlook:
- If there is organic growth available in a particular sector, besides that if there is any support from the government on that sector, then it positively works out for the stock price in the long term.
- For Example, Natural Gas Sector contribution in the Total Energy Requirement is currently at 6%, wherein the Government is targeting 15% in the next 10 years.
- Hence, it is also quite possible to predict this on a longer-term horizon.
4) Assuming the Trends- ROCE, ROE, Cost of Capital:
- If the important ratios like Return on Capital Employed (ROCE), Return on Equity (ROE), etc. are on an improving trend, then it is a positive sign for the company, and the stock price can perform well in the longer term.
- While in the longer term the cost of capital should go down.
- This improvement or degradation can easily be tracked and hence its impact on stock price can be predicted quite easily.
These are some factors that play a key role in the stock market movement in short term and long term. Investors should invest with a longer time horizon, but if participating in the stock market for a shorter duration then he/she should keep in mind certain short-term factors which play a crucial role in impacting the stock price movement. Do consult a financial advisor before making any investment decisions.