Macroeconomic Factors Affecting Stock Market

Many market participants often wonder about the factors that influence stock prices. There is no mathematical equations or formula which can help to determine whether a stock price will go up or down. However a number of factors play a key role in the price of a stock. This article will look to explore some of these factors :

1. Fundamental Outlook: Fundamentals of the underlying company influence stock prices to a huge extent. The earnings per share (EPS) and the Price to Earnings ratio (P/E) is an important indicator of how the stock has been priced relative to the company’s performance. Along with this free cash flow per share is also a good indicator of the earnings potential of the company. These indicators can be used to determine how a stock will get priced in relation to the fundamental outlook of the underlying company.

2. Takeovers or mergers: When there is

Demographics: Macroeconomic factors play a major role in the stock markets as a whole. Amongst the various macroeconomic factors, demographics are an important factor. Generally middle-aged people tend to invest more in stock markets than old aged people. So stock markets of countries that have more of middle-aged people tend to perform well than the stock markets of countries that have aged demographics.

10. Interest Rates: Interest rates are also a major macroeconomic factor that has an overall influence on the stock markets. Higher interest rates would leading to higher cost of borrowing money. This would reduce the money available in the economy and reduce the flow of money into the stock markets, The economic activity also tends to slow down and the earnings tend to see depreciation. This leads to drop in stock prices. Similarly, when the interest rates are low there stocks see bullishness.

Along with the above discussed factors other factors like inflation, natural disaster, product recalls and lawsuits, patent approval, war and political outlook which also influence stock