2. What Causes Stock Market Prices
to Plummet?
by
Syed Muhammad Khalid
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3. • Stock prices go up and down based on supply and
demand. When people want to buy a stock versus sell it,
the price goes up. If people want to sell a stock versus
buying it, the price goes down.
• Forecasting whether there will be more buyers or sellers
of a certain stock requires additional research, however.
Buyers are attracted to stocks for any number of reasons,
from low valuation to new product lines to market hype.
CAUSE STOCK MARKET PRICES TO
PLUMMET
4. • Although factors such as earnings per share and P/E (Price
to Earnings Ratio) are standard metrics of valuation, many
other factors can impact whether a stock goes up or down.
Some of these include
1. Technical factors :
2. Exogenous events:
3. Macroeconomic environment:
4. Current market trend:
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5. 5
Technical Factors
A whole segment of market participants utilizes market
data to determine which stocks should be bought and
when. Technical analysis relies on price movements only,
rather than other valuation factors, and investors often
track them on charts. Patterns in the charts provide insight
into how a stock price might move.
Technical analysis makes three assumptions, according to
Fidelity:
• A security’s price reflects all information related to the
6. Macroeconomic Environment
• Any economic factors that can hurt corporate
earnings can also depress stock prices. Inflation is
one example. Historically speaking, high inflation
has tended to drive stock prices lower.
• This is because inflation causes higher prices,
which makes it more expensive to run a business.
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7. 8
• Sometimes, stocks go up simply because they
have been going up. In a strategy known as
momentum investing, investors buy shares in
rising stocks and sell shares in those that are
following.
• This momentum builds on itself and continues to
drive rising share prices higher. Also known as
relative strength investing, this strategy follows
market trends to select stocks rather than other
traditional valuation metrics.
Current Market Trends
8. • Investors try to identify trends early to maximize the
time they can profit from the run-up — and minimize
the time it takes to sell stocks on the decline.
• This strategy can be rather volatile, as it amounts to
timing the market. Tools such as stop loss, which is an
order to sell a stock when it drops to a certain price,
can help offset some of the risks. 9
Current Market Trends
