The stock market is a dynamic, multifaceted system that sometimes makes us wonder why seemingly sound companies end up tanking while non-revenue-generating startups somehow soar. For those looking to begin trading stocks, bonds, and other equities, understanding the current volatility of the market is a fundamental skill to have. Market unpredictability can be caused by a variety of factors, including changes in economic conditions and geopolitical events. Below, Mikhail Solodovnikov has outlined some of the most important aspects of the present market conditions to help investors navigate the wild ride.
Current Trends
The current stock market trends seem to be all over the place. Indeed, things appear too unstable and uncertain at present, and this has accordingly influenced many investors’ interpretations.
An unstable stock market typically occurs when prices and interest rates start to fluctuate significantly. This often means a substantial number of investors face uncertainty and worry regarding their own assets.
Investing in stocks under these conditions can be quite a dangerous game. Still, during a turbulent market such as our current one, suitable opportunities do exist, though identifying where they are is the real challenge.
A Fluctuating Market
Fluctuating markets refers to a period of sustained price oscillations. Typically, this will see massive price changes, whether up or down. Usually, one will find that many peaks will be either preceded or followed by a sharp value drop.
One of the most obvious features of the stock market is its unpredictability. Nonetheless, whenever these conditions suddenly end up appearing, investors tend to get caught up in fear-based trading.
Naturally, during a sharp price slump, investors can stand to make a very tidy profit through purchasing stocks in a down market. However, the unpredictable nature of stocks means that they will often be much less predictable – making financial losses still quite possible. As such, even a seemingly low price has the potential to plummet far more.
Volatility is incredibly high during economic uncertainty. Of course, this can also present a profitable opportunity. Unfortunately, it’s much more common for investors to face significant risk in this process.
Dangerous Investing
Some of the most highly variable markets at present are those in China, where the market has grown by nearly a third in less than two months. Even so, these scenarios are presenting a problem, as they complicate the cause of the instability.
With Chinese markets growing significantly (and quickly), many Western exchanges have responded in kind. With that being said, a significant missed part of this change was that the People’s Bank of China had recently cut interest rates. This may account for the sudden spike we’ve seen as of late.
Nonetheless, there’s no single factor influencing the stock market. Therefore, unless one is willing to take a high risk, investing during this sort of market could be dangerous. And until the experts are able to pinpoint specific triggers more closely, it may remain critically difficult to predict.
Final Thoughts
The stock markets are never an easy thing to predict, which is why so many investors are at risk of losing money with expensive investments. That’s not a position anyone wants their bonds and shares to put them in.
However, like it or not, stock markets are highly variable both ways. Thus, there is no simple way to predict how they will change, whether it is positive or negative. In the end, this often comes down to external factors outside of the investor’s control – and so the importance of carefully managing investments cannot be stressed highly enough.