Why do the stock markets keep on going up and down?
The basic theory is that market fluctuations occur partly because companies make money, or lose money!
But it is much more involved than just that.
A stock is only worth what someone thinks that is fair to pay for it!
Usually, if a company makes a lot of money, its value rises, because people are willing to pay more for a company’s stock if the company is doing well.
There are many other factors that affect the value of stocks.
One example is interest rates, or the amount of money you have to pay a bank to loan money, or how much it has to pay you to keep your money in their bank.
If interest rates are high, stock prices generally go down, because if people can make a decent amount of money, by keeping their money in banks, or buying bonds, they feel like they should not take the risk in the stock market.
Many other factors have an effect on the stock market – for example, the state of the economy.
If there is more money floating around, there is more flowing into companies making their prices rise.
Yet another factor is time of year, and publicity.
Many stocks are seasonal, meaning they do well during certain parts of the year, and worse during others.
Publicity has an effect on stock prices.
If an article comes out saying that company ABC, has just invented a new type of paper that will revolutionize the industry, odds are their price will increase.
Conversely, if an article comes out saying that the company’s president is a crook, and stole money from it, this is a good bet that the price will go down.
