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2021 4th Edition (Other Editions)

Managing Stock Market Fluctuations

Volatility refers to the rate of the stock price which increases or decreases over a particular period.

Higher stock price volatility often implies higher risk and investors may estimate the fluctuations that may happen in the future according to the statistics.

In the following, the factors of causing stock price volatility will be discussed:

What drives stock price volatility?

1. Political and Economic Aspect
• Governments major in regulating industries and impact an economy when they make decisions on trade agreements, legislation and policy, which influences stock prices.
• Economic data, like the Monthly jobs reports, inflation data, consumer spending figures and quarterly GDP calculations can represent the market performance.
• If these miss market expectations, markets may become more volatile.
2. Industry and Sector Aspect
• Specific events, like the oil sector, for example, a major weather event in an important oil-producing area can cause oil prices to increase.
• The stock price of oil distribution-related companies may increase, as they would be expected to benefit, while those that have high oil costs within their business may fall.
3. Company Performance
• Volatility isn’t always market-wide and can relate to an individual company.
• Positive news, such as a strong earnings report or a new product that is wowing consumers, can make investors feel good about the business.
• If many investors decide to buy it, this increased demand can help to raise the stock price.
• Oppositely, a product recall, data breach or bad executive behaviour can all hurt a stock price, as investors sell off their stocks.

Source retrieved from: https://www.fidelity.com.hk/en/start-investing/learn-about-investing/your-guide-to-stock-investing/understanding-stock-market-volatility-and-how-it-could-help-you