Introduction

The following discussion shows that the stock market is an exceedingly diverse and dynamic environment following stock market price movements due to one reason or another. To invest wisely, shareholders need to know the causes of variations in stock prices on the market. Stocks provide quotations that fluctuate constantly due to several factors, such as economic factors, customer sentiment, as well as the general performance of a given firm and others. This paper looks at the major components that affect the prices of stocks and how these components of the market work. Stock price change analysis helps investors to realize the causes of the changes and then adapt to such changes.

The Economy: A Major Driver of Stock Prices

Among the key influences that apply pressure on stock prices there is none more important than the state of the economy. Fluctuations in the economy are firsthand and definitely affect the stock market by way of the life cycle, which consists of growth, recession, change in monetary policy among others. Also in conditions of an economic upturn, the companies are likely to record better returns on their stocks because of the increased consumers’ expenditure resulting to higher stock prices. On the other hand, during a period of slow growth, or a recession, the income of companies is often reduced, and therefore there are poor sales, low profits and hence poor prices for the stocks.

Matters such as the growth in Gross Domestic Product (GDP), employment levels/ rates and other aspects such as consumers’ confidence in the economy have become hooked by investors. Such indicators give a snap shot of the state of the economy at the time of sampling and maybe used to forecast future movements in the stock markets. For example, high GDP growth rate mean good economic conditions, and this in turn means good results on the stock exchange as investors are confident of good earnings. In contrast, negative economic information will lead to the decline in trading prices due to lower expected organizational performance.

Inflation: The Impact of Rising Prices

The other which is also important is the inflation, or the rate of increase in price of products and services in a given period of time. This normally results in high stock valuation because shares are trades at a premium to its earnings since inflation is low and therefore, future cash flows have a higher value in the present. Low inflation also promote spending and therefore increases the company sales and hence its revenue.

But high level of inflation is by its nature damaging for stock prices. They conclude that whereas inflation reduces monetary value for consumers, a high rate slows consumption expenditure since consumers can buy less. Furthermore, central banks inflate interest rates in order to bring down inflation which is a costly affair to businesses and consumers. Since high interest rates have had the effect of lowering the corporate earnings and slowing the rate of growth of the economy hence the price of stocks drops down.

It is important to realize that deflation, is relatively rare but will also have an effect on stock prices. It signals a situation of erosion of the ability of organisations to dictate the price at which they are willing to sell, and therefore they may be forced to slash prices in order to generate sales, implying lower mk-out rates. Persistent deflation poses risks such as the creation of a deflationary vortex of low inflation rates and economic growth slow down is bad for the stock market.

Dividends: A Signal of Company Health

Dividend pays outs by companies to shareholders is one way of directly affecting stock prices. An announcement on a dividend increase is usually accompanied by a message to the investors that the management of the company is sure of its future revenues. This may lead to an increase of the stock price since many investor will be rushing to the market to buy the particular stock with aim of receiving the dividends.

The equity curial securities It could be observed that in the equity policy, if a company is having a policy to increase, its rate of dividend then the stock price is expected to raise however; if a company had scored or even suspended its rate of dividends then the price of the stock is likely to decline. Such payments are crucial for the income investors who depend on the receipt of such amounts within periodic intervals. Therefore, workable changes of the policy can influence the market’s appeal of the stock or its price.

Supply and Demand: The Core Principle of Price Movements

The law of supply and demand is a basic law which acts as the market fundamentals for stock quote in the market. In its essence, if there are a large number of buyers than sellers in the market regarding a specific security, the price shall rise. On the other hand, if there are lots of sellers with their stocks to sell compared to those, who are ready to buy, the unit price comes down. Fluctuations in the supply and demand are, therefore, oriented to the changes in investor relations, companies’ performances, and macroeconomic factors.

Several specific factors can influence the supply of a company's shares:

1.              Company Share Issues: When companies offer new shares in the market in an effort to get some capital, this has a general effect of expanding the number of shares that exist within the market field. If the demand to overcome these new shares is not available, then there is an effect on the lowering of stock prices.

2.              Share Buybacks: If companies buy back shares from the market, the amount of shares in circulation in a particular company is lower hence the increased price for specified shares.

3.             Investor Selling: When it is in the large-scale selling by investors, a situation can arise whereby investors result to market sales increasing the amount of shares in the market and should the demand is not enough to fill this place, then the price of shares will come down.

Similarly, factors affecting demand for a company's stock include:

1.               Company Performance and News: H1: Generally positive news like better than predicted earnings statements, new product releases, significances mergers /acquisitions business partnership can increase demand while negative news can decrease it.

2.               Market Sentiment: This entails the average perception of investors resulting from the various factors which affecting the economical factors such as gross domestic product, the occurrence of war or strikes, and influential factors affecting a certain industry.

3.               Industry Trends: But when an industry is in its growth cycle, it makes investors flock to the stocks in the industry while investors run away from industries that are in a decline cycle.

The Stock Market as an Auction House

The business of trading stocks is somewhat similar to an auction which is because buyers and sellers negotiate over the price of the stocks. Every price is pair with a willing buyer and a willing seller whereby, the buyer is the one to set the market price of the stock. Excess demand is a situation where quantity demanded is greater than quantity supplied at a certain price level it will be succeeded by a price rise. Similarly if there are many sellers and few buyers inclination, the price is brought down so that buyers can rush in. It exhibits an auction form of bidding to offer a continuously updated market quotation for each of these stocks representing the most recent price arrived at. Large changes in sweeps can occur when a central bank releases its statement, when companies publish their results or when some political events occur, since such happenings create a shift of power between buyers and sellers in a stock exchange in the short run.

The Influence of Investor Psychology

Markets are ruled by people and that means that investor psychology and market sentiment always play a big role in stock exchanges. Market feeling is the overall or general attitude, or feeling of investors towards a market or a particular stock. This can be in form of news, economic indicators, rumor among others. Firms float their stocks on the market with the belief that when investors have a positive attitude, they will purchase more stocks, pushing the prices up. However, when they are pessimistic they might sell stocks which in real leads to the stock prices going down.

Herd behavior is another factor in the formation of market sentiment to influence investors mass to act in a particular way other than acting individually, based on facts. This can lead to overvaluation during momentary mass admiration for the stock or undervaluation if the people are panicking and want to sell the stock. This kind of analysis is important to predict short term trends in the stock price movements effectively capturing the discretionary attitude of the markets and investors, as sometimes prices may not necessarily reflect the real performances of the business.

The Cost of Borrowing

Like in any other field, emotions have a tremendous influence in investment decisions and the market in its broader sense. Where market sentiment is concerned, it maybe deemed as what opinion investors have about the market or a specific security. This may be occasioned by news, economic data or even rumors. Positive feelings lead to stock purchase and consequently enhances the prices of stocks among investors. On the same note, if they are pessimistic they can sell equity making price to drop in the process.

Market sentiment can also be driven by referential conduct where investors emulate the move of other investors rather than conduct their research on the performance of firms. This can cause stocks to reach higher levels of overvaluation in the middle of a bubble and undervalued in the middle of a panic selling. Another very important factor is so called mind-set, or psychological climate in the market where shares of particular company are traded; in most cases, major changes in short-term price movements are caused by psychological factors and do not reflect real changes in the company’s financial performance.

Company-Specific Factors: Earnings and Performance

Market forces based on specific company data like, financial results and analysis, change in company’s management or future company outlook also influence its stocks. Of these, quarterly earnings reports are most powerful since they give the investor an overview of the business as it stands at the time. If a firm gives warning of sales or profits and it states a figure that is higher than that which investors had expected, the stock is likely to trade at a higher price. On the other hand, if I make little or no earnings, the stock price may drop.

Other company-specific factors include:

1.                   New Product Launches: Even exceedingly good product launches will result in an increase in price as it is likely to deliver revenues in the future.

2.                   Leadership Changes: Shifts in management, particularly the CEOs, are useful predictors of firms’ performance since the shareholders’ reactions reflect the understanding of the new leaders’ capability of leading the firm forward.

3.                   Legal Issues: Legal woes in the form of enforcement actions, lawsuits, or fines will lower a company’s value because, more often than not, it must pay penalties or settlements or otherwise sees a rise in operating expenses.

Geopolitical Events: Impact of Global Affairs

War and political instabilities or trade issues around the world can have a very profound effect on stock exchange. Such activities can result in an increase of the volume of volatility in business undertakings due to the creation of uncertainty in the market. For example, an increase in the conflict between two nations will affect the business of different companies that deal in the global markets. Geo-political risks make investors to shift stocks to funds that can be easily liquidated such as bonds or gold which pulls down the prices of stocks.

Also, change in government policies like new rules or change in taxes also have effects on some stock or industry than other and lead to change in stock prices. For instance the latest government utterances that it intends to boost spending on road and bridge construction accelerates the stocks in construction firms and material suppliers.

Currency Exchange Rates

There is no doubt that the use of the Internet would continue to have significant influence on multinational companies because the internet now exists as the powerful tool for economic and global commerce transactions. Fractions of money are used in worldwide business, and hence, changes in currency exchange rates impact firms. The exchange rate fluctuation becomes a factor of consideration when a company earns its revenues in a foreign currency. For instance, if an American company derives primary sales income in euros, higher dollar content than the euro currency could lower the dollar returns of foreign sales bucking stock price.

However, a stronger dollar may reduce sales for companies with a significant degree of international business A weaker dollar in the global market enhances the competitiveness of exports from the US. Those who are investors in multinational companies have to be wary of changes in earnings attributable to currency movements that lead to stock price risk.

Industry Trends: Sector-Specific Influences

There is also industry-wise fluctuations which goes on affecting the prices of stocks in the particular industries. During the periods of industry growth, firms belonging to the specific industry appear to gain higher stock prices resulting from interest generated by investors. For instance, when there is an emergence of technology as a revolution, many people will be willing to invest in technology stocks.

But, when an industry reaches some problems, for example, in aspects of regulation, competition or demand, stocks from that industry become a loser. For example, file a firm dealing with conventional energy resources may experience a decline in their stocks if their switch is toward renewable energy sources.

Disaster and Disturbance

External factors like natural disasters, diseases or a massive disaster in the produce can invariably affect the stock prices instantly. These events can distort supply chain and storying or impact consumers spending directly or indirectly reduce on company’s stock prices. For instance, stock markets in most countries plummeted due to the effects of COVID-19 affecting global economy several dire consequences.

The likes of such events may act up nevertheless it can also be digested that firms with faster recovery rates to their share prices may exist if and when being more prepared or more resilient comparatively to other firms more tremendously hit.

Conclusion

Stock prices are affected by the internal as well as external factors such as economical factors, events specific to the company, and external factors being political risks. These factors are crucial in as far as the investment decisions in the market is concerned hence makes the evaluation crucial to the investors. Flows of supply and demand, market mood, interest rates, inflation and thousands of other factors make the stock market fluctuating. Understanding how these factors impact stock prices, speculators are able to forecast movements on the market, and, therefore, make the best decisions regarding the portfolios.