The Up and Down Trend in Stocks – What’s Behind It?
There are numerous underlying factors that can cause an upward or downward trend in a stock. However, the most basic and essential concept is the fundamental law of demand and supply.
Every time there is a high demand for a specific stock and only a few people who hold that stock decide to sell, the price increases. On the other hand, if the demand is low with a lot of sellers, it can cause the stock price to fall.
The different factors that affect demand are all due to the data and the earnings and performance of a company. However, it can also be partly because of speculation. For example, the way investors feel and perceive the company’s profitability may determine if they will sell or buy. If the company has a new hot product that will be introduced, that company’s stock might increase.
Conversely, companies might also suffer from the adverse effects of economic conditions that not are not within their control. For instance, stay at home orders in most states due to COVID-19 resulted to a drop in the prices of oil since people don’t go anywhere. As a result, there was a reduced gas demand, leading to the oversupply of oil. And also because of COVID-19, people made sure to keep their money protected.
While there are many other reasons behind the upward and downward trend of stocks on their own, there are times when the trends in the market as a whole will push them to a specific direction.
The Bull Market
By definition, a bull market is where there is a 20% uptick in the stick prices after a long time of falling stock prices. A bull market happens due to the widespread optimism regarding the economy.
In general, when people assume that everything is going well, the tendency is for them to invest more money in the stock market since there are more opportunities for higher return.
During a bull market, it stays this way until the market experiences a major downturn. But, sooner or later, anything that goes up will have to come down.
The Bear Market
Bear markets are represented by the 20% downturn in the stock prices after a long period of increasing stock prices.
In general, economic events trigger it that seems to indicate economic distress. It can be for different reasons such as issue with trade, signals of deflation that might affect consumer spending as well as layoffs that affect most economic sectors.
No matter what the reason behind the stress might be, once people experience financial worries, the tendency is for them to avoid the higher returns that stock investments offer in favor of investments with guaranteed returns such as CDs, annuities, and bonds.
The drawback here is the possibility that you might not earn enough money from your investment to keep up with the inflation in case the economy bounces back right away yet there is the sense of security because you know that you won’t physically lose your money.
Having said this, selling is the only means for you to lose or make money when it comes to stocks. You can choose to just hold onto it with the hopes that after some time, the market will bounce back.