What Makes the Stock Market Go Down?

Wouldn’t investing be so much easier if you knew when the market would go up and down? The experts would agree with you – but also tell you that it’s just not possible. 

While you can’t know how your investments will play out, you can look at stock market trends to get an idea of what may cause the market to rise or fall.  At the simplest level, market fluctuations are due to supply and demand. If more people want a particular stock, it becomes more valuable – and vice versa.

As an investor, it’s always a bonus to know more about how investing works and where you’re putting your money. Here are a few things that (historically) have had a negative impact on the stock market.

What Makes the Stock Market Go Down?

Nobody can predict exactly when stocks will go up or down, but there are certain trends that have previously left a negative impact on the market, including world conflicts and pessimistic investor sentiment.

1. Interest Rates

Interest rates can also have an impact on investors, and thus the overall market. Think about real estate, for example. When mortgage rates are lower, there are likely more people interested in buying a home.

Just like mortgage rates, there are rates on other types of investments, such as bonds. As those rates go up and down, they can sway investors toward or away from buying in.

2. World Conflicts and Events

Negative world events, such as wars or other events, can impact the stock market negatively. For example, the market lost over 12% of its value in March of 2020 due to the Covid-19 pandemic.

Similarly, large-scale natural disasters like hurricanes or tsunamis can have an impact on market values.

3. Company Shifts

Remember when Elon Musk announced his plan to acquire social media platform Twitter in early 2022? Even though the billionaire was already a majority shareholder in the company at that point, the announcement made waves in the financial sector. 

Musk’s plan to take over the company went back and forth over the next few months, as he tried to pull out of the deal. That rollercoaster of events had an impact on investors – with many Musk fans vying to get in on the stock.

When it comes to the big companies, shifts in ownership or direction can have a big impact on the overall stock market, both negatively and positively. If you are a shareholder in a company, it’s important to stay up to date on company values, culture and direction, as these can cause market fluctuations.

4. Inflation

Inflation: it’s the reason filling up your tank is so expensive and why you’ve had to put off the home purchase another year. Inflation occurs when prices for goods and services go up, and thus purchasing power for consumers goes down. In plain old terms, it means your money doesn’t stretch as far as it used to. 

Unfortunately, inflation also has a somewhat complicated relationship with the stock market. Investopedia reports that inflation has a historically inverse relationship with the market, meaning that as inflation increases, stocks tend to decrease. This makes sense when you think about it from a consumer perspective: if you have less to spend, you’re probably investing less overall.

There are, of course, exceptions to this trend (such as value stocks), but 2022’s high inflation rates seem to be par for the course with higher prices and lower stock values.

5. Negative Investor Emotions

When investors see their portfolios plummeting, it can cause a panic – and many choose to sell off their stocks. This is where the value of a financial advisor can really help prevent any emotional decision-making. 

If we’re looking at the market from a supply and demand perspective, people are less likely to invest when they’re feeling uncertain or anxious. 

A down market can throw a wrench in your financial plans, but keep in mind that the market is fluid, and no one can predict exactly where it will go next. By knowing what historic markers can drive the market downward, you can invest with more knowledge and less anxiety.

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