ECONOMIC

GROWTH.
-Higher economic
growth or better
prospects for growth
PRICE TO EARNINGS will help firms be more INTEREST RATE
profitable because there -Lower interest rates can make
RATIOS will be more demand shares more attractive for two
-Some investors and economists, for goods and services. reasons. Lower interest rates help
such as Robert Shiller feel the best
boost economic growth making
guide to the long-term
performance of shares is their firms more profitable. Also, lower
price to earnings ratios. interest rates make shares
relatively more attractive than
saving money in a bank or holding
bonds.

FACTOR THAT
RELATED MARKET INFLUENCE STABILITY
-Often investors have choices.
For example, rather than
STOCK MARKET -Stock markets dislike shocks
investing in stock market, they
could buy government bonds
PERFORMANCE that could threaten economic
stability and future growth.
or commodities. Therefore, they will tend to
fall on news of terrorist
attacks or spikes in the price
of oil.

CONFIDENCE AND
BANDWAGON EFFECT
EXPECTATIONS
-At times the stock market seems
to over-react to certain events. For - A key factor is the mood of
example, in 1987, relatively little investors. If they receive
bad news caused the stock market economic news that gives
to fall 25%. optimism then they are more
likely to buy shares.