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What is currently driving stock prices so strongly

The stock markets are currently in flux: there are repeated swings down but then up again daily. The development is a sign that investors are unsettled. We take a closer look at why share prices are volatile and why there is so much movement on the stock market.

A brief statement at the press conference was enough, and the largest stock market indices and many share prices began to fall.

Central Banks between inflation and rate hikes

A recent key factor is relatively high inflation, i.e., the increase in the price of goods and services because a sustained sharp rise in prices could slow down economic growth.

The risk of high inflation

Because if prices rise sharply, companies will not be able to pass on additional costs for raw materials, energy, and wages directly to customers.

Consequence: declining corporate profits and thus also declining willingness of companies to invest. Not surprising, then, those share prices are falling for all companies that would be particularly affected.

Stock market marked by uncertainties

These possible effects of a changed interest rate policy and possibly further strong inflation led to some uncertainty on the markets. That's why stock prices fall -- and then rise again. The uncertainty on the stock exchanges is not only determined by interest rates and inflation but there are also other factors.

The world economy and Corona

Even if many people probably can't or don't want to hear it anymore: almost two years after the outbreak of the Covid19 pandemic, the global economy is still heavily influenced by the coronavirus. The reasons for this are partly global supply chain problems, so there are sometimes bottlenecks in individual components, such as electronic chips required by the automotive industry.

Russian attack on Ukraine

Concerns about the situation around Ukraine add to the uncertainty. In the meantime, Russia has deployed such strong troop contingents that security experts believe a massive attack on Ukraine is possible at any time. President Vladimir Putin has made it clear several times in Moscow that he will not accept Ukraine as an independent state. In 2014, Russian troops had already occupied the Ukrainian peninsula of Crimea and provided military support to armed separatists in eastern Ukraine.

How can investors react to the current situation?

In principle, ups and downs on the stock exchanges are not unusual.

However, in recent months, the impression has been given that the stock market is going up day by day. The reason was that the stock markets recovered from the severe Corona price slump in spring 2020. It became clear that despite its long duration, the Corona pandemic would not damage global economic growth in the long term.

Due to the low-interest rate or zero interest rate policy, there have recently been almost ideal conditions on the capital markets, especially for technology stocks or green shares: They benefited from the fact that particularly cheap loans were available to them.

Investors should therefore make sure that they:

  • Invest globally in a broadly diversified manner

Even if stock market prices fall at times, this does not equally affect all sectors or countries.

  • Benefit from buying and hold

Many active fund managers claim they can outperform the entire market with their investment strategies and often rebalance their portfolios during such market phases. This often results in particularly high costs for the buy and hold approach.

  • Keep the goal in mind

It is also important to keep an eye on your personal goal: Those who set aside money for old-age provision, asset accumulation, or their children have a long-term investment horizon of several years. Short-term market phases have little effect on long-term performance.