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Investments and Stock Prices

Stock prices rise and fall by the second. But, what affects the value of company stocks?

So, if you are looking to make money by trading on the stock market, the first and foremost bit of information you need to know and understand is why stock prices rise and fall.

The general economy

Stock prices usually rise when an economy is strong and or strengthening. During such a time businesses are growing, employment numbers are higher therefore more people have money to spend on merchandise and services. Subsequently, this helps business profits rise and in turn their stock price will rise as well.

Conversely, in times of a recession people are concerned about their jobs and refrain from spending large sums of money. As a result company profits are affected and their share value decreases.

Economic policy and rate movements

Economic policy can also cause stock prices to rise and fall.

For instance, high interest rates regularly lead to stock price falls for two reasons. The first reason being, high interest rates on bonds and investments make them more appealing than stocks. People remove their money out of the stock market for guaranteed high rate returns on high-interest investments.

The second reason is that high interest rates mean that the cost of borrowing from large corporations rises. This ultimately makes their debt payments higher and their profits lower.

Exchange rates between currencies also have an effect on share prices. When the rand is strong against other currencies it makes South African products more expensive overseas. This reduces the demand for South African exports in other countries, affecting sales, profits and the stock price.

Performance of Corporations

For the most part, stock prices are determined by the supply and demand for them. If MTN are generating a good profit, people will want to purchase their shares. Subsequently, this drives up the price.

If a company is not doing well and is making losses, less people will want to hold those shares thus there will be an increased supply of them. Generally, this will reduce their value.

Outlooks and mindsets

A stock price is purely driven by profit levels and earnings; and this poses a problem for predicting stock markets.

Analysis of the stock market predicts what a corporation’s profits will be before their results are announced. Stock prices will usually rise when profits are better than they were estimated to be. If the results are poorer than they are expected to be – despite whether the company is still making billions of rands in profits – the stock price may still fall.

You can compare investments to find the best investment opportunities when you invest in the stock market. Comparshop’s precise and up-to-date investment comparisons allow investors to make wise and informed decisions when investing online in South Africa.