While the prospects for individual quoted companies can vary enormously, there are four very important factors which dictate stock market trends. Taking a top-down approach to your investment means taking into account general market trends, then drilling into individual sector and company trends. In volatile times, individual sectors and individual shares may find it difficult to “go against the wider market trend” which may impact your investment decisions.
Government influence
Fortunately or unfortunately, depending on your view of politics, governments can have a significant impact on stock market trends. While the Bank of England is operationally independent of the UK government, it still has an obligation to react to challenges such as inflation. Therefore, directly and indirectly, government fiscal and monetary policy will help to shape short, medium and long-term trends.
The more recognisable tool used to shape market movements are the setting of base rates which has an influence on the cost of borrowing. In difficult times, interest rates tend to be lowered to increase access to cheap borrowing and therefore encourage spending. In more buoyant times, you may see interest rates increased as a means of reducing access to borrowing and therefore directly influencing consumer spending.
Internal transactions
Imports and exports tend not to be the main topic of conversation among day traders looking at short-term trends. However, an imbalance in imports/exports can have a significant influence on the currency and domestic economy. If exports are relatively high, this will see funds leaving the country and being exchanged into foreign currency. If imports are relatively high, this means that exporters need to acquire sterling, supporting the currency and the economy.
While the impact of imports and exports can be much more complex than the brief analogy above, that is the theory in a nutshell.
Speculation and expectation
Speculation and expectation can vary widely from minute-to-minute, hour-to-hour, and day-to-day. However, short, medium and long-term trends can be heavily influenced by the government and for example the Bank of England. On a company level, the issue of trading statements, forecast profitability and suggested adjustments to expectations are a useful means of managing speculation and expectation. The main variable with the management of expectations is the body which is trying to influence markets.
The recent actions of the Bank of England are a prime example of a well-respected historical body losing its way. Throughout most of 2021, into 2022, the Bank of England refused to acknowledge the threat of inflation. Month after month internal forecasts for inflation were found to be out of touch and out of date before they had been published. Then we had the constant flip-flopping on interest rate movements, which ultimately reduced the power and influence of this well respected body.
The Bank of England has now found itself behind the inflation curve, but there are hopes that the well-earned reputation will soon be restored.
Supply and demand
Now we get down to the very crux of market movements, supply and demand which is influenced by governments, trade figures and speculation and expectation. If there are more buyers than sellers the share price will rise. If there are more sellers than buyers, the share price will fall. It is what influences supply and demand which creates the trends that attract long-term investors and day traders. Spotting an emerging trend at a relatively early stage can be lucrative but there are risks.
Competitive trading fees
Here at GIS UK Ltd, we appreciate the balance between high quality trading services and a competitive charging structure. Our ongoing growth in trading volumes allows us to reinvest into new technology, maintaining our competitive position against our competitors.