How news affects the stock market: in the United States, arms manufacturers rallies amid protests

In our blog, we have repeatedly written about how news can influence the value of shares in companies. Recent protests in the United States have become another illustration of this phenomenon – amid riots in the country, the demand for weapons has grown significantly. As a result, in early June, quotes of arms manufacturing companies overtook in terms of growth, the S&P 500 index.

What happened

Shares of the largest arms manufacturers in the USA – Smith & Wesson and Sturm Ruger & Co. seriously rose amid protests. Shares of the first rose more than 15%, the second – increased by almost 10% during the first trading sessions in June.

The gunsmiths showed growth rates that exceed the growth rate of the S&P 500 index, which includes the largest US companies. At the same time, before, the dynamics of stocks of arms manufacturers were inferior to this index.

Analysts explain the surge in interest in their products, including the unrest that broke out in some cities in the United States during the protests.

Protests in the USA and the IT World

Protest actions influenced not only the value of shares of individual companies. So Sony was forced to postpone a virtual press conference on the release of the new PlayStation 5 game console (the event eventually took place). In turn, Google postponed the presentation of the new version of the mobile operating system Android 11 – the event was to be held on June 3.

In addition, the NASDAQ has canceled the opening of a trading floor in Philadelphia.

Not only protests: how coronavirus affected exchanges

We have written many times about how news affects the stock price of various companies. The coronavirus pandemic has become a global news item that has affected stock markets around the world. Only at the end of February, when news about the coronavirus began to gain momentum, in just one week, global markets lost $ 5 trillion in capitalization. At that time, the Dow Jones index made the largest one-day drop in its history, losing 1,191 points at once.

Against such a negative background, shares of any companies – both fuel and energy (investors expected a deterioration in their performance due to lower demand for fuel due to quarantines around the world), and even Amazon and Apple (in this case, investors were worried about the supply chain To China).

Why does the news affect the exchange so much, and how to protect yourself from sharp fluctuations

An important role in the influence of news on the market is played by the media. Negative materials are usually read more readily. For example, in the case of the record fall of the Dow Jones, no one even remembered that two weeks earlier he had experienced a record take-off. And even despite the market decline in recent months, it is still higher than a couple of years ago.

In addition, investor perceptions should not be underestimated. It’s easier for people to react to news that contains an indication of the movement of prices down or up. If the news is uncertain and needs to be interpreted, then the reaction to it can be very sluggish or extended over time. Earlier we gave an analysis of this phenomenon as an example of restrictions for the euro / franc pair by the Swiss National Bank – then the reaction to very important news was extremely inhibited.

In order to reduce risks during moments of sharp movements in the market, various risk management systems are implemented in the work of exchange systems. Some of them provide their clients with brokerage companies themselves.

A similar mechanism exists in the ITI Capital trading system. MATRIX. It protects customers from risks arising from malfunctions in the risk management system of the exchange. In addition, in the trading terminal SMARTx There is a built-in risk management module that allows you to limit account operations when a certain loss is reached, as well as protect open positions with stop loss and take profit orders.

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