Everyone knows that the stock market rises and falls. There are booms, and there are busts. Markets are “bear” when they’re bad and “bullish” when they’re good. It’s never clear until usually long after the fact when the stock market begins its rise or fall – whoever gets the sense of timing best is usually viewed as a genius – but nonetheless, there are forces an investor can look at to get a sense of where the stock market is going. These forces, acting together, can cause the stock market to fall.
The poor health of the nation’s economy as a whole, separate from the stock market, is usually the biggest driver in the stock market’s fall. When unemployment shoots up, for example, people have less money to spend, so demand falls. Even people who still have jobs will cut back on spending, in case they lose their jobs too. Other factors that can cause the stock market to fall include rises in interest rates, as set by the Federal Reserve. Rises in interest rates means borrowing becomes more expensive. When borrowing becomes more expensive for businesses, for example, they will refrain from expanding, and that means fewer potential jobs are created.
In the current stock market fall, which is very steep, much of the downturn is due to poor decision-making on Wall Street, particularly in terms of the real estate industry and mortgage lending. Poor decision-making by the nation’s biggest banks means they need their money to cover their losses, which means there’s no money to lend. In fact, this current downturn has a liquidity crisis (no available cash to lend) as part of its genesis. When the stock market falls, it often does so in a “snowball effect,” meaning people get scared and sell their stocks, causing the fall to get steeper and faster.
To learn more about factors causing the stock market to fall, be sure to meet with a financial advisor and discuss the topic in all the detail you need. You need to know how to protect yourself from stock market declines, and know how to profit from them too – don’t forget, cheaper stock prices means there are plenty of bargains out there which will more than likely increase in value if you hold on to them long enough.