Stock market volatility reflects investor nervousness due to factors such as political unrest, weather, and economic reports. High volatility can trigger heavy trading and benefit the market, but it’s not always a predictor of a rally or crash. Government reports, corporate earnings, and retail sales also impact the market, while political and environmental factors can cause fluctuations.
Stock market volatility describes rises and falls in the value of shares traded on international stock markets. These stock market fluctuations are often a reflection of investor nervousness caused by a variety of different factors. Common causes of stock market fluctuations include political unrest, weather and environmental issues, and economic reports.
However, in most cases, stock market volatility increases during periods of economic uncertainty, because this high volatility can often trigger heavy trading, these periods can sometimes benefit the overall market. Some investors claim that high volatility periods often occur just before a stock market rally, while low volatility can sometimes signal an impending crash. In reality, it’s usually not that simple, as many factors usually work together to dictate rises and falls in stock values.
Government economic reports generally have a large impact on stock market volatility. Many investors eagerly await reports from government labor departments outlining job growth and unemployment. The results of these reports often generate rises or falls in market indices. If the reports are good, markets tend to rise, and bad reports will often cause a decline.
Corporate earnings reports also influence the direction of the markets. If large corporations show healthy profits, this tends to make the markets rise, and if they report losses, this also reflects in the markets. In most cases, corporate earnings reports are issued quarterly.
Other reports that have a big impact on stock market volatility are retail sales reports, and investors use this data to help make decisions regarding the overall financial health of consumers. If consumers are spending, the stock market generally goes up. If retail sales reports are low, it can often cause a decline in the stock market. Retail sales reports not only measure actual dollars spent, but break them down into spending categories. Investors can use this data to illustrate what types of items consumers are actually buying, and can invest accordingly.
In many cases, political unrest in an area that controls world commodity rates can sometimes cause fluctuations in the markets. For example, in the oil-rich areas of the world, wars or political turmoil can be of great concern. Most of the world’s economies are driven by oil, so any threat to oil production has the potential to be catastrophic for world markets.
Environmental factors, particularly those related to the weather, can also affect stock market volatility. For example, during hurricane season, when offshore drilling operations are often threatened, the price of oil typically increases. This can cause the market values of shares that depend on moderate oil prices to fall. Other weather factors that affect stock market volatility include drought or floods that could lead to shortages of food crops.
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