What Makes the Market Rise and Fall?

The forces that move the stock market are complex, intertwined, and often daunting. To a casual investor, it can be difficult to make sense of what makes the market move. In fact, it is downright unsettling the first time you see an investment lose value.
 
Stock prices naturally rise and fall. Some industries are more volatile than others. Company news and corporate management can play a role in stock prices. Quarterly financial reports are also a contributing factor, whether they soared past expectations or fell short of production. But at the end of the day, the value of a company’s stock is based on supply and demand.

Supply and Demand

Every factor that influences a company’s stock value does so because it changes the number of investors who want to purchase the stock. When a company has a good quarter and exceeds expectations more investors may want to purchase their stock. At the same time, the people who currently hold the asset may be less likely to want to sell. The combination of people wanting to buy and not many people wanting to may sell can potentially drive the price higher if the fundamentals are strong.
 
The opposite may be true as well. When an event occurs that causes the stock to look less attractive, there maybe less people willing to buy. At the same time, investors might be ready to sell their shares. If a large number people are willing to sell their stock and there is a lack of buyers, the price may go down. 

Betting on Return

Taken as a whole, the stock market tends to have a better annual return than most savings account products. For example, the S&P 500 has a ten-year average return of slightly over 8%. (Past performance is not a guarantee of future performance.) If a savings account offered even 1% interest, it might be considered a high-yield savings account today. Many banks currently offer a fraction of a percentage point for interest on savings accounts. It is fair to say that an investor can potentially earn more money in the stock market than they can by putting their money into a low yield savings account over a long period of time. However the risk of investing in the stock market is higher than having the money in a bank savings account. 
 
The average return takes into account the performance of all the individual company stocks listed on the exchange. (Past performance is no guarantee of future performance.)  A individual company or combination of companies are not likely to have the same average return.  Investors build diversified portfolios to spread thier inestos out in order to shield themselves against potential losses. If a portfolio has many different stock holdings, then the performance of an individual holding may not have much effect on the portfolio as a whole.