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What is Stock Market Volatility?

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  • Written By: Susan Grindstaff
  • Edited By: Heather Bailey
  • Last Modified Date: 06 December 2016
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Stock market volatility describes rises and falls in the value of stocks traded on international stock markets. These stock market fluctuations are often a reflection of investor nervousness brought about by a variety of different factors. Common causes of stock market fluctuations include political unrest, weather and environmental concerns, and economic reports.

In most cases, stock market volatility rises during periods of economic uncertainty, however, because this high volatility can often trigger intense trading, these periods can sometimes benefit the overall market. Some investors claim that high periods of volatility often come right before a stock market rally, while low volatility can sometimes signal an imminent slide. In reality, it is usually not that simple, as many factors usually work together to dictate both rises and falls in stock values.

Government economic reports usually have a big impact on stock market volatility. Many investors anxiously await reports from government labor departments that outline job growth and unemployment. The results of these reports often generate either rises or falls in market indexes. If the reports are good, markets tend to rise, and bad reports will often cause a drop.

Corporate earnings reports also influence the direction of markets. If major corporations are showing healthy profits, this tends to cause markets to rise, and if they report losses, this too is reflected in markets. In most cases, corporate earning reports are issued on a quarterly basis.

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Other reports that have a big impact on stock market volatility are retail sales reports, and investors use this data to help make determinations regarding the overall financial health of consumers. If consumers are spending, the stock market usually rises. If retail sales reports are low, it can often cause a decline in the stock market. Retail sales reports not only measure the actual dollars spent, but are broken down into categories of spending. Investors can use this data to illustrate what types of items consumers are actually buying, and may invest accordingly.

In many cases, political unrest in an area that controls types of world commodities can sometimes cause fluctuations in markets. For instance, in oil-rich areas of the world, wars or political upheaval can be of significant concern. Most world economies are oil driven, so any threat to the production of oil has the potential to be catastrophic for world markets.

Environmental factors, particularly weather related, can also affect stock market volatility. For instance, during hurricane season, when offshore drilling operations are often threatened, the price of oil usually rises. This can cause the fall of market values for stocks that depend on moderate oil prices. Other weather factors affecting stock market volatility include drought or flooding that could result in scarcity of food crops.

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