Stock Market Performance works as a barometer of the general economy of a country. The rise and fall of share prices at the stock exchange is mostly dependent on the market forces. If the share prices rise or remain stable then it indicates that the companies and the general economy also have signs of stability and growth.
On the other hand, a stock market crash can be a result of an economic recession, depression, or financial crisis. Therefore, the share price movements and stock index movements indicates the general economical trend of a country.
The market trends that a financial market may have are the following:
Bull Market and Bear Market. A Bull Market indicates that the condition of economy is good, there is no unemployment, the gross domestic product (GDP) is increasing, and the stock prices are up. A Bull Market is accompanied with growing investor confidence and it inspires the investors to buy stocks in anticipation of more capital gains.
During a bull market choosing stocks is much easier because everything has an upward trend. A person is called a bull if he has an optimistic thinking and belief that stock prices will rise, and his outlook is termed as a bullish outlook. An exaggerated bull market influenced by overconfidence and/or speculation can create a stock market bubble. Bull markets cannot be a perennial condition and sometimes can head towards a dangerous situation if there is overvaluation of stocks.
A Bear Market indicates that the economy is bad, recession is imminent, and stock prices are going down day by day. A Bear Market is always associated with far-reaching pessimism. Investors panicked by anticipation of further losses are provoked to sell stocks. It is very difficult for investors to choose a profitable stock during Bear Markets. One way to make money during bear markets is the short selling technique. Another strategy is there and that is waiting on the sidelines until there is a feeling that the bear market is going to end, and beginning to buy shares only when there is an anticipation of a bull market. If a person has a pessimistic thinking that stock prices are bound to go down, he is termed as a bear and his outlook is a bearish outlook. An exaggerated bear market is often accompanied with declining investor confidence and panic selling and may result in a stock market crash and subsequent recession.
Secondary Trends (Short-Term):
Correction and Bear Market Rally. A secondary trend is a transient change of price within a primary trend. The tenure can range from a few weeks to few months. A correction is a temporary decrease at the time of a bull market, and a bear market rally is a temporary increase at the time of a bear market.
Secular Trends (Long-Term):
Secular Bull Market and Secular Bear Market. A secular market trend is a trend that is long-term in nature and may last from 5 to 20 years and includes subsequent primary trends. In a secular bull market the bear markets are smaller in duration than the bull markets. In a secular bear market, the bull markets are smaller in duration than the bear markets. Stock Market Performance is dependent on a lot of factors. Some of the factors are internal and some of the factors are external. One of the important internal factors can be a company’s performance. If it continues to have increased revenues and profits and good asset value, then people will be confident on buying that particular company’s shares. If they do so, the price indices of that particular company’s shares will go up on the stock exchange.
This is an indication of improved Stock Market Performance. On the other hand, if it continues to run at a loss, then its share prices will go down and people will start selling those shares. Then the price indices of that particular company’s shares will come down on the stock exchange and that is an indication of poor Stock Market Performance.
The external factors may include changes in government policy, recessions, depressions, natural calamities, unprecedented incidents like the 9/11 disasters etc.
Last Updated on : 26th August 2013