While events like the passing of Steve Jobs, CEO of Apple, affect the market, there are many other influences currently coming into play as well. The following article discusses a few basic economic factors like inflation, deflation, interest rates, and foreign markets, and how they influence the stock market.

Economic Factors That Affect the Stock Market

by Arnold Anderson
visit Demand Media to view the complete article

Many kinds of factors affect the stock market. Social unrest can cause the market to drop, while a company discovering a new source of renewable energy can cause stock market prices to soar. Several economic factors affect the stock market that every investor should be aware of before getting involved in market investing.

Inflation And Deflation

Inflation can have an adverse affect on the stock market, according to the article titled “Forces that Move Stock Prices” as published on the financial website Investopedia. Inflation is the rate at which the price of goods and services increases. It is the result of several factors, including a rise in the cost of manufacturing, transporting and selling goods. When inflation is at a low rate, the stock market responds with a surge in selling. High inflation causes investors to think that companies may hold back on spending; this causes an across the board decrease in revenue and the higher cost of goods coupled with the drop in revenue causes the stock market to drop. Deflation is when the cost of goods drops. While deflation sounds like it should be welcomed by investors, it actually causes a drop in the stock market because investors perceive deflation as the result of a weak economy.

Interest Rates

Interest rates as established by the Federal Reserve Board and individual banks can have an affect on the stock market, according to an informational pamphlet titled “What Drives Stock Prices” published by the New York Stock Exchange. Higher interest rates mean that money becomes more expensive to borrow. To compensate for the higher interest costs, companies may have to cut back spending or lay off workers. Higher interest rates also mean that a company's money cannot borrow as much as it used to, and this has an adverse affect on company earnings. All of this adds up to a drop in the stock market.

Foreign Markets

Economic trends in foreign markets can have an effect on the stock market in the United States, according to the article titled “Riding the Economic Roller Coaster” published in “Inc.” magazine. When the economies in foreign countries are down, American companies cannot sell as many goods overseas as they used to. This causes a drop in revenue, and that can show up as a drop in the stock market. Foreign stock exchanges also have an effect on the American stock market. If foreign exchanges start to fail or experience sharp drops, then that kind of activity can cause American investors to anticipate a ripple effect, resulting in a drop in the United States stock exchange.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

chart courtesy of CNNMoney

The effects of the European debt crisis on the U.S. stock market are undeniable. The following article outlines what you need to know and what the outlook is for investors. 

Market’s biggest risk? Duh. It’s Europe.

by Hibah Yousuf
visit CNNMoney to view the article

NEW YORK (CNNMoney) — It’s been on and off the back burner for a year and a half, but the European debt crisis is finally nearing a boiling point.

In fact, more than 80% of the experts surveyed by CNNMoney agree that the money problems across the Atlantic are the most challenging hurdle for stocks, which have been struggling to claw back from the lows they hit earlier this month.

“Europe’s debt crisis is the No. 1 risk facing the market right now,” said Fred Dickson, chief market strategist at D.A. Davidson & Co. “Each step made toward solving the sovereign debt or bank reserve issues seem to raise new question, and the news suddenly changes from being very negative to very positive and vice versa.”

Investors first became troubled by the eurozone’s fiscal woes in early 2010, as worries about Greece defaulting on its debt spread to the other so-called PIIGS, including Portugal, Ireland, Italy, and Spain.

Policymakers were able to ease those concerns with bandages of bailouts and austerity measures, and events like the Arab Spring helped distract investors, at least temporarily. But the crisis continued to escalate and has gripped investors’ attention for months.

Europe’s debt crisis: 5 things you need to know

Lately, every time any incremental progress has been made toward solving Greece’s debt problems or the spreading European crisis, investors react with a surge of optimism and stocks rally.

But when political conflict or rating downgrades take over the headlines, it’s like splashing cold water on that optimism and stocks tumble.

Amid all the mood swinging, the S&P 500 has mostly been moving choppily sideways between 1100 and 1200.

“If we see some sort of plan or deal that settles Europe’s issues, that will relieve a lot of the uncertainty that markets hate [and] stocks will be able to break out of the range to the upside,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research.

But that may still be a ways off. Late Tuesday, Slovakian lawmakers rejected a plan to overhaul the European stability fund. Slovakia was the last of the 17 eurozone countries to vote on changes to the fund, and the only country to reject those changes.

Even a Greek default, which is now widely expected, would help ease tensions, he added.

“With all the negative priced into the market, a default by Greece wouldn’t be the end of the world,” Detrick said. “In fact, it could be a potential positive to get some uncertainty out of the way.”

CNNMoney survey: Where the markets are headed

Investors would breathe an even bigger sigh of relief if European leaders announce a plan to recapitalize the banks that have exposure to Greece and other debt-laden countries.

“What we want to see is essentially what would be a TARP fund to finance and isolate the bad assets at banks, like Belgium is doing with Dexia,” said D.A. Davidson’s Dickson.

Last weekend, the leaders of Germany and France, Europe’s two largest economies, said they’ve agreed on a “comprehensive package” of measures to address the eurozone sovereign debt and banking crisis, but were tight-lipped about the details. The plan is expected to unveil at the G20 meeting in Cannes Nov. 3 and 4.

Meanwhile, European Commission president Jose Manuel Barroso is expected to announce his own recapitalization plan Wednesday afternoon.

As long as the risks of a contagion are contained, Europe’s debt crisis should move out of the limelight, allowing investors to focus on the U.S. economy and earnings. But that doesn’t mean it won’t creep back in later.

“We’ll be talking about Europe for the next five years probably,” said Dickson. “For the situation to really abate, there need to be signs of better economic growth in southern Europe — Greece, Spain, Italy and Portugal.” 

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.

Today’s market activity with early losses followed by a late rally, are evidence of what a volatile environment investors are faced with. While concerns about conditions in Europe and Greece are factors, there are many influences on stock prices. The following article outlines some of those influencing factors on the market.

Three Main Influences on Stock Prices

by Ken Little
visit About.com to view the complete article

There are three main areas of influence that move a stock’s price up or down. If you understand these influences, it will help you decide whether the price movement is a buy, sell or sit tight signal.

Fundamentals

Clearly, the most direct influence on a stock’s price is a change in the economic fundamentals of the business.

If revenues and profits are on a steep upward trend with no indication of leveling off, you can expect to see the stock price rise as investors bid up this attractive company.

On the other hand, if the profit picture is flat or, worse, declining with no change in sight, look for investors to abandon the stock and the price to fall.

These are simple examples of changes in fundamentals. Other, more complex and subtle changes can occur that may not dramatically affect the stock price immediately (increased debt, a poor acquisition and so on can also trigger price changes).

The point is that changes in the underlying business have a direct impact on the stock’s price. Smart investors spot the subtle changes before they become price-movers and take the appropriate action.

Sector Changes

Changes in the stock’s sector can have positive or negative affects on price too. Some sectors or industries are cyclical in nature and you should know that would affect price.

However, when whole sectors catch of fire (think dot.com stocks) or burn up (think dot.com stocks, again), even those companies that have solid fundamentals are pulled along with the rest of the sector.

You may hold a stock that is a victim of “guilt by association” when an industry falls out of favor. Likewise, stocks can see prices artificially inflated if they find themselves in the right industry at the right time.

Market Swings

The market goes up and the market goes down. That’s about all you can say with certainty concerning the stock market.

As the market moves up and down, your stock may move with or against it. Most large-cap stocks will follow the market to some degree, but smaller companies may not get the same push every time.

In general, a strong market move either up or down will carry more stocks with it than not, so your stock may be up or down for no other reason than the market was up or down.

Conclusion

How do you use this information? A change in fundamentals may be an opportunity to buy more shares of a growing company or it may signal the time to sell if the changes are for the worse.

A change in the sector is usually temporary so most long-term investors will ride out dips due to these factors. However, if something drastically changes in the stock’s industry due to regulation or a new technology, for example, you may want to reevaluate your position. Is the company capable of adapting or do you own a dinosaur?

Market swings that move your stock’s price can be opportunities to buy additional shares (assuming all the company’s fundamentals still checkout). If the rising market pushes up your stock’s price, it may be time to take a profit on part of your holdings and wait for the price to come back down to earth to reinvest.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.