What does influence the share market?

In general share prices are influenced by news or information: new data on employment rate, manufacturing, election results, or corporate earnings, to name a few. Economy The health of the global economy has a fundamental influence on share prices because it is ultimately responsible for driving company profits. Broadly speaking, if the economy is growing, company profits improve and shares will become more highly valued. If the economy is weakening, company profits will fall and share prices will go down.

The kind of information you need to play close attention to is: employment data, the reports put out by the Monetary Policy Committee (to get an idea where interest rates are headed), trade with other countries, retail sales and manufacturing.

Companies whose profits are closely tied to the health of the economy are known as 'cyclical' stocks. Those businesses that aren't too affected by the economy are called 'defensive' stocks. If economic conditions deteriorate you will often see investors shift from cyclical stocks to defensives.

Political environment
Because government is so powerful in terms of guiding the direction of the economy, buying goods and services of companies, changing tax rates, etc. stock market prices often anticipate and react to changes in Presidential and Congressional leadership.

Expectations of future corporate profits
Basically a company's current stock price reflects investors expectations of its future earnings. If the company publishes a report in a future quarter that is below or above that expectation, its stock is likely to fall or rise, respectively. If a lot of companies report earnings that are above expectations on the same day, stock prices as a whole tend to climb.

Professional reports
Reports produced by independent analysts also influence share prices. If an analyst changes their recommendation from 'sell' to 'buy', for example, the shares will often rise in value.

The financial pages of most national newspapers and investment magazines usually contain share tips. Like analysts' reports these tips can have a major influence on share prices. If a journalist recommends a share, the price will usually rise and if they write a negative story the price will fall. These moves usually happen very quickly so if you are going to follow the recommendation it often makes sense to do so as soon as possible.

Technical influences
Share prices can rise and fall for a variety of technical reasons that may have nothing to do with the actual outlook for an individual company or the outlook for the market.

It is a common occurrence for share prices to drop back after a strong rally. This happens because investors take profits on some of the shares that have risen in value, protecting their gains just in case the shares start to slip back. Investors often refer to this as market consolidation.

Share prices can also be affected by investors who use technical analysis to drive their investment techniques. Technical analysis is simply the study of past share price movements and stock market index trends, which are then used to forecast how shares and stock markets will behave in future. Market-makers can also influence prices. If they, for example, do not own enough shares to balance their books they will have to buy more. Market-makers also influence prices if the market is looking flat, reducing prices to attract buyers.

The above factors affect stocks generally. On an individual level, stocks are affected by many factors such as:

* Corporate earnings
* Changes in management
* News about competitors and whether they are taking business away from the company
* New products and services
* Lawsuits