What Affects Stock Market

Monetary policy implemented by central banks, such as the Federal Reserve in the United States, is the single biggest factor affecting the stock market, as it influences interest rates and the money supply, which in turn affects the overall level of economic activity and inflation, increasing stock prices when interest rates are low, as seen in the case of the 2008 quantitative easing policy, which increased the S&P 500 by 30% within a year.

Main Factors

• Monetary Policy — affects stock market through interest rates and money supply, increases stock prices when interest rates are low, as seen in the 2008 quantitative easing policy, which increased the S&P 500 by 30% within a year, with the Federal Reserve purchasing ~$1.7 trillion in assets (Federal Reserve).
• Fiscal Policy — influences stock market through government spending and taxation, increases stock prices when government spending is high, as seen in the case of the 2020 US stimulus package, which increased the Dow Jones by 20% within six months, with the US government spending ~$2.2 trillion on stimulus measures (US Treasury Department).
• Economic Indicators — such as GDP growth rate and unemployment rate, affect stock market by influencing investor confidence, increases stock prices when GDP growth rate is high, as seen in the case of the 2018 US economy, which had a GDP growth rate of 3.2% and saw the S&P 500 increase by 10% within a year, with the US GDP growth rate averaging ~2.3% annually (Bureau of Economic Analysis).
• Company Performance — affects stock market through earnings reports and dividend payments, increases stock prices when company earnings are high, as seen in the case of Apple's 2020 earnings report, which beat expectations and increased the company's stock price by 10% within a day, with Apple's revenue reaching ~$274 billion in 2020 (Apple annual report).
• Global Events — such as wars and natural disasters, affect stock market by influencing investor sentiment, decreases stock prices when global events are negative, as seen in the case of the 2020 COVID-19 pandemic, which decreased the Dow Jones by 30% within two months, with the pandemic affecting ~3.3 billion people worldwide (World Health Organization).
• Market Sentiment — affects stock market through investor attitudes and expectations, increases stock prices when market sentiment is positive, as seen in the case of the 2019 US stock market, which saw a bull run with the S&P 500 increasing by 30% within a year, with investor sentiment reaching a ~10-year high (Investors Intelligence).
• Regulatory Environment — affects stock market through laws and regulations, increases stock prices when regulations are favorable, as seen in the case of the 2018 US tax reform, which decreased the corporate tax rate and increased the S&P 500 by 10% within six months, with the US corporate tax rate decreasing from ~35% to ~21% (US Treasury Department).

How They Interact

The interaction between Monetary Policy and Fiscal Policy can amplify their individual effects, as seen in the case of the 2008 US stimulus package, which combined monetary and fiscal policy to increase the S&P 500 by 30% within a year. The interaction between Economic Indicators and Company Performance can also amplify their individual effects, as seen in the case of the 2018 US economy, which had a high GDP growth rate and saw many companies, such as Apple, report high earnings and increase their stock prices. The interaction between Global Events and Market Sentiment can cancel each other out, as seen in the case of the 2020 COVID-19 pandemic, which decreased the Dow Jones by 30% within two months, but also led to a increase in market sentiment as investors expected a quick recovery.

Controllable vs Uncontrollable

The controllable factors are Monetary Policy, Fiscal Policy, Regulatory Environment, and Company Performance, which are controlled by central banks, governments, regulatory bodies, and companies, respectively. The uncontrollable factors are Economic Indicators, Global Events, and Market Sentiment, which are influenced by a wide range of factors, including economic trends, geopolitical events, and investor attitudes. For controllable factors, central banks control monetary policy through interest rates and money supply, governments control fiscal policy through government spending and taxation, regulatory bodies control regulatory environment through laws and regulations, and companies control company performance through earnings reports and dividend payments.