Financial Market Trends

November 23, 2010Financial Marketby EconomyWatch


Financial Market Trends reflects the changes (ups and downs) in the rates and prices of financial products traded in the financial markets. Market trends give valuable information about investment and trading opportunities available for prospective players in the financial markets. Financial market trends are mostly concerned with movements in the money and capital markets of any country. Financial market trends can also capture the trends in the interest rates arising from the monetary policies undertaken by the government and the central banks of the respective countries. The central bank in the case of India is the Reserve Bank of India (RBI) and that in the case of the USA is the Federal Reserve. In both the cases, inflation and exchange rates of the domestic currency are the determinant factors. One of the basic premises of financial markets is its integration and interrelation to other sectors of the economy such that changes in any sector of the economy rapidly gets transmitted through financial trends, which in turn affect the trends in the market. These market trends unfold in periods when there is interaction among the number of sellers (bears) and the number of buyers (bulls) in the financial market. The market trends or the sentiment of the market is defined as “bullish” or “bearish” in certain stocks according as its price or value is showing an upward or downward trend.

Some of the primary market trends in this context can be defined as the bull market and the bear market. A bull market tends to be associated with increasing investor confidence in the performance of the shares and stocks and instigating them to buy more with the expectation of further capital gains. A bear market is accompanied by widespread pessimism about the performance of the financial market. Bear market trends are observable in cases of prices of a key stock market index falling over a period of time from a recent peak period. The “great depression” of the 1930's in the US economy occurred mainly due to continuing bear market trends in the US stock markets in preceding years. Technical analysts of the stock market will state that the bulls and bears of the stock markets are a cyclical feature and thus many speculators and investors exploit these to reap the maximum capital gains. Business cycles, according to many, are at the heart of analyzing market trends in an economy as expansion and contraction tend to occur at regular intervals. While an exaggerated bull market run fuelled by over confidence and speculation leads to a stock market bubble (increasing anticipation of this symptom is found in China), exaggerated phases of the “bear run” can lead to a stock market crash and a recession.

The stock market or the share market is one of the fundamental components of the financial markets and one can get a good idea of where the market is headed by relying on two pieces of information: namely price and volume of the number of shares traded on a particular exchange on a daily basis. If the market has a high-volume day and prices (of the indexes) are up, usually an upward market trend is observed which will entail a buying spree from mutual funds and institutional investors who are the volume buyers and sellers that move the financial market. On the other hand, a high-volume day with prices falling (more sellers then buyers) could indicate a downward market trend which will be associated with big players pulling out of the market.

There are also temporary changes in stock index prices within a primary trend which can arise due to certain extraneous causes (such as the 9/11 attacks on the USA severely affected the Dow Jones Industrial Average which plunged by 684.81 points to 8920.70 on September 17, 2001. financial market trends can also be about secular market trends which are defined as long-term trends that last 5 to 20 years and consist of several sequential primary trends. Secular market trends can also be divided into secular bear and bull markets.

Some of the leading Stock Exchanges with their Indices are listed as follows :

  • Bombay Stock Exchange (India): Sensex
  • National Stock Exchange (India): Nifty
  • New York Stock Exchange (NYSE): Dow Jones Industrial Industrial Average (DJIA), Standard & Poor (S&P) 500
  • Tokyo Stock Exchange (TSE): Nikkei
  • London Stock Exchange (LSE): FTSE 100, FTSE 250, FTSE 350
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