How Global Events Impact The Stock Market

Whilst the stock market is valuing every company based on that company’s performance and plans for the future, the market is always also going up and down because of the overall sentiment of the market. In other words, if traders feel worried or uncertain they down value things, but if they feel positive and optimistic then they upvalue things.  When the market drops because of sentiment that gives investors the chance of buying quality companies at discounted prices.  Here is an exploration of some different events that makes the whole market move.

What Drives Stock Market Movements? The Role of Uncertainty and Bad News

We are often asked: what makes the world’s stock markets move around? The answer is bad news and uncertainty.

However, not all bad news has the same impact. What’s negative for one party may be positive for another. Here are some examples of how different events can affect the stock market:

Rising Interest Rates: The Winners and Losers

Good News For:

• Savers benefit as interest rates on savings accounts rise, giving them higher returns.

• Currency traders may profit because higher interest rates often strengthen a country’s currency in the global market.

Bad News For:

• Investors face higher borrowing costs for companies, which can squeeze profit margins and lead to lower stock values. This uncertainty often results in declines in the market as investors worry about reduced profits.

Oil Price Increases: The Impact on Global Stock Markets

Good News For:

• Oil companies and investors in the sector stand to gain as rising oil prices boost profits for these businesses.

Bad News For:

• Consumers are negatively impacted as rising oil prices drive up the cost of nearly everything produced using oil. This leads to higher overall prices, reducing consumer demand and potentially hurting companies dependent on consumer spending.

Inflation Rising: The Economic Winners and Losers

Good News For:

• Borrowers benefit from inflation, as it reduces the real value of their debt compared to their income, which increases due to inflation.

• Companies that can raise prices in line with inflation may see widening profit margins as consumers are more accepting of price hikes during inflationary periods.

Bad News For:

• Consumers are hit hardest by inflation as the cost of living rises, meaning their money doesn’t go as far.

• Manufacturers and traders may face reduced demand as consumers cut back on spending due to the higher cost of goods.

War Breaks Out: Who Wins and Who Loses?

Good News For:

• Arms suppliers see an increase in demand for weapons during conflicts, driving up their market value.

• Construction and infrastructure sectors may benefit post-war, as reconstruction efforts create new economic activity and business opportunities.

Bad News For:

• The impact of war can vary. For example, the conflict in Ukraine disrupted Russian oil supplies to the West, leading to rising oil prices. However, regional conflicts like in Gaza may not have the same broad effect on global trade or markets.

Economic Growth: When Expansion is Good, and When It’s Not

Good News For:

• Governments benefit from higher tax receipts as economic growth leads to more tax revenue, allowing for better public services.

• Investors enjoy higher profits as growing markets typically lead to increased corporate profits and higher stock values.

• Workers may see more job opportunities and potentially higher wages as the economy expands.

Bad News For:

• When the economy grows too quickly, it can overheat, creating a bubble. If the growth is unsustainable, a market correction can follow, and those who invest during the bubble may face significant losses when it bursts.

Tariff Wars: The Uncertainty of Global Trade

National economies sometimes try to protect domestic interests by imposing tariffs on imports, making goods more expensive to sell within their borders. This results in shifting profits from importers to governments.

Who Benefits from Tariffs?

• Some argue that tariffs protect manufacturing jobs and prevent the flooding of markets with cheap goods.

• Others believe that tariffs hurt consumers, drive inflation, and reduce innovation.

While there has been a global trend toward reducing tariffs, recent nationalist and protectionist policies have led to a tariff war between major economies like the U.S. and other nations.

The Impact of Tariff Uncertainty:

With no clear answer on whether tariffs will ultimately benefit or harm certain sectors, markets remain in a state of uncertainty. This uncertainty leads to negative sentiment among traders, resulting in stock market declines, reduced investments, and job losses.

Until the outcome of the tariff war is determined, the markets will likely remain volatile. However, once a resolution occurs, markets are expected to recover as the uncertainty is lifted.

Navigating the Complex World of Stock Market Movements

It’s essential to understand that bad news is often a double-edged sword. While some events negatively impact certain sectors, they can create opportunities for others. The key to successful investing is recognising the underlying complexities and preparing for the inevitable uncertainty that shapes the markets.

At KGJ we are here to help you every step of the way of your stock market investment journey. We can share our knowledge, expertise and resources, no matter the current level of knowledge of the stock market you already have. Contact us today for an initial consultation.