Systematic and Non-Systematic Factors Influencing Stock Performance
Systematic Factors
Monetary Factors
Interest Rates: Central banks, responsible for macroeconomic policy, control investment types during periods of price increases (inflation) and decreases. When interest rates increase, investors often move away from the stock market and opt for fixed income. When interest rates decrease, it encourages investment in the stock market as companies incur lower costs, thus increasing consumption and positively affecting company performance.
Currency Valuation: This refers to the value of one currency against another (usually the dollar). It affects companies engaged in the import and export of goods and services.
Assets Held by the Public: Savings and deposits represent the liquidity held by individuals in a society. As assets grow, consumption typically increases, improving company performance.
Economic Factors
Industrial Production Index: This is an indicator of demand. It helps predict consumption and, consequently, company sales results.
Leading Indicators: These indicators, such as new car sales and new housing licenses, provide insights into the development of the economy. These industries are significant because they involve many ancillary industries.
GDP: The sum of all goods and services produced by an economy in a year.
Current Account Deficit: This reflects a country’s indebtedness. If saving is less than investment, the economy must borrow externally.
Unemployment Rate: A key indicator of the economy’s health. Lower unemployment can lead to increased productivity and better financial performance for companies. It’s measured through public surveys like the EPA.
Public Deficit: The difference between government revenue and expenditure. Financing the deficit often requires issuing debt or increasing taxes, which can cool the economy and impact consumption and company results.
Non-Systematic Factors (Financial)
Corporate Results: One of the clearest factors influencing stock performance. Profits should align with market estimates. Companies that meet or exceed expectations are often rewarded, while those that fall short are penalized.
Debt: The market tends to penalize highly indebted companies, especially if the cost of debt exceeds the return on investment.
Price-to-Earnings Ratio (PER): An indicator that shows how many times the company’s earnings are contained in the stock price. A high PER suggests the stock may be expensive, while a low PER may indicate it’s undervalued.
Dividends: Dividend announcements can make a stock more attractive to investors, positively influencing its performance. However, the actual payment of the dividend can sometimes cause a temporary price drop.
Capital Reduction: This refers to the cancellation of outstanding shares. Companies can repurchase up to 5% of their shares, which can influence the stock price. This can act as a stabilizing mechanism.
Psychological Factors: Investor sentiment and market psychology also play a role in stock price fluctuations.