What every MBA Professional should know about Economic Factors affecting Stock Market

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There are several factors that affect the stock market. Sometimes social factors can cause a drop in the market while a new source obtained by a company can soar the stock market prices. Following are some of the factors that are contributing to the ups and downs in stock market prices.

Inflation
Most of the time adverse effect on the stock market can be expected when there is inflation. Inflation is usually referred to as the rate at which the price of either the products or services increases at an uncontrolled proportion. There are several reasons for inflation to occur and this usually includes the rise in manufacturing cost or the rise in transportation cost. When the inflation is having lower rate the stock market reacts with a surge in the selling of stocks. Usually, the rise in inflation causes investors to react in a negative way thinking that the company is holding back on spending which eventually decreases the stock value. When there is deflation which is caused by the drop in prices investors usually see it as assign of the weak economy and this also leads to a stock market price drop.

Rate of Interest
The rate of interest established by banks and governing boards can also affect stock market prices. A higher rate of interest indicates that money will be becoming expensive for borrowing stocks. For coming up with higher interest rates companies usually cuts spending or layoffs workers. A higher interest rate also forces the companies to limit the amount of money they used for spending which could adversely affect the earnings. These effects due to higher interest rate usually cause a drop in stock market prices.

Foreign Markets
Sometimes the trends in foreign markets can also cause a variation in the stock market. This is due to the fact that when foreign markets are down companies which are selling products and services to foreign countries will find it difficult to sell the same amount which leads to falling of stock prices in the home market. Due to ripple effect also there will be the drop in prices in the stock market.

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