Why is the Stock Market Affected by Non-Financial Events?

The stock exchange is known to be a big risk because it is easily and severely affected by the events that occur around it and because of the huge loss that one can incur if the stock prices drop. 

The risk may be considerably large but so can the return. That's why many people prefer it as a way to invest their money. The question is why is the stock market affected by non-financial events?

The stock exchange is affected by any event that has an economic impact. This is mainly due to people expecting the event to affect companies’ performance, and recently this was clearly demonstrated when we witnessed the severe impact on the stock exchange by the Corona virus crisis, which led to a sharp decline in the value of shares in stock exchanges on a global level including Egypt.

How to start investing in the stock market? Learn more here: What is the stock exchange? Know more about what are shares

The stock market is affected by future expectations of recession

The main reason the stock exchange was affected by the emerging Corona virus crisis is the expectations of the recession associated with it, which led to investors losing confidence in the future value of the shares they own. 

As a result there was a rush to sell, and the more shares were sold, the more the value of the shares decreased because the main controller in the stock market is supply and demand.

Which is why when there is a recession or even expectations of a recession for a period of time there occurs a sale rush of shares which results in the decline in the value of trading on the stock exchange especially when it comes to the purchase of shares.

 A vicious cycle emerges of selling and the decrease in share value as a result which leads to more selling and so on and so forth

“The main reason the stock exchange was affected by the emerging Corona virus crisis is the expectations of the recession associated with it, which led to investors losing confidence in the future value of the shares they own.

Know more about the Egyptian Exchange and follow the stocks on the Egyptian Exchange website

The stock market is affected by future supply and demand

If the demand on any commodity decreases it affects the future value of the commodity as well as the speculations on whether the demand on said commodity will increase again or not. 

We saw this during the American oil crisis when the emergence of the Corona epidemic reduced demand for fuel after quarantines led to the reduction in movement and ban on international flights.

This affected the stock exchange and the speculation on the future value of oil as well, which fell and remained in the negative for the first time ever.

Ultimately the stock exchange is affected by any event that has an economic impact because it will affect the companies listed on the stock market.