The Stock Market
Over the summer, I gained an interest for stocks, so much so I actually went out to buy some with an app that doesn’t charge any commision. I did this without a full understanding of what actually affects prices. I don’t fully have a grasp on what influences prices(no one does), but i can say i’m a bit more informed. I gained about 2-3% in 2 days and i thought this was it! I was meant to be an investor. But that quickly turned around when I lost 10% in the span of a week. As of this point, I don’t consider myself a particularly terrible or good investor, the loss was caused by a wave which was caused by China and affected the stock market as a whole. In a few months, the professor will be talking about information cascades, while this is somewhat related to what i’ll be discussing how certain entities and corporations can affect stock market prices akin to that of strong and weak ties.
An example of a global financial network
One of many influencing factors of stock prices is international government action/news. A very good example is China, in case you don’t follow along with the news the DOW jones industrial average opened up 1000 points lower than its previous closing price. This is a huge number on it’s own, but a better way to conceive it is that was the largest point drop in it’s history in a single day (yes even more than the 2008 financial crisis). This came after the news that China devalued its currency by 2%. While that doesn’t sound like a big deal, China is the most economically dependent country the US has a relationship with. The devaluation also brought about fear of a slowing economy after years of economic growth leading to a cascade of falling prices throughout the week. In fact (for that week only) one could somewhat tell how much of a decline the US was going to face when they opened from china’s trading patterns (china trades while us sleeps and vice versa). Stocks like AAPL(nike) and NIK(nike) which are companies with significant exposure to china were affected a lot. AAPL tumbled about 20% in less than a month. A second example is oil., Oil is was below $40 a barrel just last week, as you can imagine such a low price will have huge effects on different stocks. As you can imagine some airlines will benefit from this as 30% of their operating costs are now lower, Solar companies like FSLR & SCTY will see a slight uptick in interest.On the other hand, whole countries like Venezuela and Russia are struggling and are in deficit because of the oil prices. These are just a few examples as to how almost every news event somewhat affects stock prices positively or negatively. Some of these events also slightly affect stock prices. An example of this is inflation, which doesn’t move stock prices in a sharp direction either up or down, but gradually over time.
I haven’t talked about factors that’d be more obvious to investors like a companies earnings per share(EPS) and Price per earnings (P/E) because i wanted to focus more on ‘external stimuli’. But either way if you’re interested in Financial networks, take a look at both of these articles. Investopedia & Wikipedia