Capital Markets Efficiency

Securities Prices

A security price may change due to changes in the national or global economy, falling gross domestic product, or a negative U.S. jobs report.

Securities prices are influenced by a large number of factors, including changes in the national economy in which the security is traded and changes in the broader global economy. Investors look at more than a company's revenues, profits, debt, and product offerings when deciding whether or not to invest in the company or even in a particular industry or market segment. Investors are also influenced by their outlook and faith in their own economic future and that of the broader economy. For example, if an investor feels a recession is near, they may be concerned that stock prices will drop, or they may be concerned that they will lose their job; thus, they may pull back from investing in securities and instead put their money into bonds, cash, and other safer investments. Alternatively, if an investor feels confident in their financial status and believes that the overall economy is healthy, they may be more aggressive in terms of how they invest, and they may be more willing to buy stocks and invest higher amounts.

There can be significant broader economic indicators that influence securities prices in both elastic and inelastic markets. The gross domestic product (GDP) provides a general gauge of the overall economic status of a country, in terms of goods and services produced by that country. When the GDP is falling or not meeting expectations, consumers may become less confident about the overall economy and pull back their investments. Businesses concerned about the GDP may halt plans to build new factories or hire more employees.

The U.S. government also publishes a monthly report that tracks the unemployment rate as well as the number of jobs created and lost compared to the previous month. The jobs report also accounts for seasonal employment gains and losses related to farming and other industries in which jobs are cyclical in nature. Consumers and businesses alike can be positively and negatively affected by changes in the jobs report; it can drive subsequent behavior in ways that affect the price of securities. Higher employment levels may indicate that people will have a higher economic output, such as shopping more, and vice versa. Investors watch the jobs report and may adjust their portfolios accordingly. This can cause some stocks to rise or fall based on changes in investor behavior. Significant noneconomic occurrences, such as extreme weather-related disasters, war, and terrorist attacks, can also affect securities markets.