The key drivers of the stock market prices

Stocks (also known as equities) are securities[1] which represent the ownership of a fraction of a company. This is a way for investors to enjoy capital appreciation and outpace inflation over time. These stocks are traded on stock exchanges at a price. A stock’s price is the current value of a share of stock of a company. It is important that investors understand what drives the stock market prices so they are well equipped to make better financial decisions.

The factors driving the stock market prices include:

• Demand and Supply: The main driver of stock market prices is the demand and supply in the market at that point. This is because the stock market functions as an auction in which buyers and sellers settle prices for shares in companies. When the buyers are more than the sellers, demand is greater than supply and this drives price upwards. The price goes down when there are more sellers than buyers.
• Earnings: Earnings refer to the profitability of a company. They provide the essential information about how a company’s business is doing. The company’s earnings history, current earnings and forecasted earnings are vital in determining its current valuation. Most investors look at company earnings as the primary guide to determine a company’s worth so when a company has strong earnings, it will affect their stock price as the demand for its stocks would increase. Investors often use the earnings per share (EPS) ratio to measure a company’s profitability.
• Dividends: Dividends are the share of corporate profits a company gives to its shareholders. A vital part of a company’s valuation[2] comes from its dividend. When a company reaches a stable level of growth, it might decide to not re-invest all its profits into their company for future growth. In this case, it will begin distributing dividends to its shareholders. A company is more valuable the more it pays out to its owners, and this tends to drive its stock price higher. A number of dividend ratios like dividend yield ratio, dividend pay-out ratio are used to evaluate dividend stocks so as to predict future dividends and evaluate the company’s ability to pay dividends in the future.

Stock market prices are important in making investment decisions as the growth in stock prices means a stock is performing well. Constantly keeping track of your portfolio could be strenuous as you might not always have the time to monitor your investments.

Here at AXA Mansard Investment Limited, we have highly trained portfolio managers who are knowledgeable and ready to help you achieve your financial goals.

Visit our website www.axamansard/investments/ to learn more or call us on 09062557772.