what factors do you think influence the rise and fall of the stock market?

[kyla]

I need different opinions that are well detailed and elucidated. This question is for a social science fair.

[Darth Severus]

Supply and demand, like any market.
Mostly demand tho, since supply is always there.

Demand for stocks depends on:
- balance of current price against expected profitability & it's volatility,
- rate of return on bonds and other alternative investment,
- amount of money that financial institutions receive through investments and savings.

PS What does "elucidated" mean?

[Meg]

You might want to look at the Capital Asset Pricing model that explains the variation between stocks.
http://en.wikipedia.org/wiki/Capital_ass...cing_model
The broad market indexes are effected by the economic outlook which will effect profits of most companies, and inflation which effect the return on other investments mostly bonds. From time to time irrational bubbles form in the stock market. There was one in 2000 and in 1987

[robert c]

This might not be that well elucidated (made lucid or clear) perhaps, but to the above I would add what Keynes called "animal spirits": those mysterious psychological factors which affect investor behavior. Individual stock valuation relies to an extent on individuals' ability to predict things like company profits, success of new products, potential legal troubles, etc.; meanwhile, the stock market as a whole is affected by perceptions of future inflation and job growth, among many other factors. Peoples' ideas of degrees of risk and opportunity (like what Greenspan called "irrational exuberance" in the 1990s tech bubble), can have huge effects on stocks individually and in the aggregate.

The Panic of 1907, for example, was exactly that. Somewhat overzealous speculation led to a huge crash, but the efforts of some-- J.P. Morgan in particular-- helped stem its effects. Morgan bought stocks which were plummeting, perhaps "irrationally" on his part, restoring investor confidence. By contrast, similar efforts failed during the Great Depression. (As an aside, in clinical psychology, depression is of greater severity and duration than a "panic attack", making these both aptly named economic phenomena.) The long and short of it: where both of the above replies are true, I think there is also a lot of humanity, for better and for worse, at work in this grand machine.