Factors that shape the market trends
A trend is the direction taken by the price of a good or service in the marketplace. Such changes are short, intermediary or long term. In all these cases, trends result into either profits or losses for those involved in the process of trade.
The following are the principal factors that shape market trends both in the short, intermediate and long terms:
Supply and demand
The forces of supply and demand for goods, services and currencies create changes in prices for these categories. The law of demand and supply stipulate that; a reduction in the supply of any item or service generates an increase in supply with a corresponding fall in prices if they experience a rise in supply beyond the existing demand. These two forces are, therefore, the core factors that shape the trend in a free market.
Being the developers and implementers of fiscal policies, governments have significant influence on fluctuations in the financial market. Variation in interest rates, have the effect of stimulating growth and altering flow of foreign investments while an increase in government spending, creates job opportunities that further raise purchasing power in an economy that determine changes in the price of goods and services.
For a financial system, speculation works jointly with stakeholder expectations to shape the market trend. General stakeholder expectations on the future performance of an economy, good or service influence their decision to participate in the sale or purchase of financial instruments, goods or services. These shape the market trend and create an expectation of the outlook of such a trend in the future. The decision to trade in wheat, for example, emanates from the output of principal producer countries in a season, and such information help in forecasting the possible future changes in the price of this commodity.
Transactions between countries
The stream of funds among countries has an effect on both currencies and economic growth because these resources end up creating employment opportunities in destination countries through investments in the various industries. Countries that major on exports like China, for example, end up generating surplus foreign exchange that shape both the financial markets in and create more employment.
The above factors work together as functions of a market trend and are not independent in their influence on fluctuations within a marketplace.