It is difficult to identify specific factors that influence the market as a whole. The stock market is a complex, interrelated system of large and small investors making uncoordinated decisions about a huge variety of investments. "The market," so to speak, is not a living entity, rather, it is just shorthand for the collective values of individual companies.
There are basic economic principles that can help explain any up and down market movements and with experience and data, there are more specific indicators market experts have identified as being significant.
The Basics: Supply and Demand
In a market economy, any price movement can be explained by a temporary difference between what providers are supplying and what consumers are demanding. This is why economists say that markets tend towards equilibrium, where supply equals demand. This is how it works with stocks; supply is the amount of shares people want to sell, and demand is the amount of shares people want to purchase.
If there is a greater number of buyers than sellers (more demand), the buyers bid up the prices of the stocks to entice sellers to get rid of them. Conversely, a larger number of sellers bids down the price of stocks hoping to entice buyers to purchase.
Individually, security instruments like stocks and bonds are dependent on the performance of the issuing entity (business or government) and the likelihood the entity will be valued more highly in the future (stocks) or be able to repay its debts (bonds). (For more, see: Stocks vs. Bonds.)
Widely Accepted Market Indicators
This begs a new question: What creates more buyers or more sellers?
Confidence in the stability of future investments plays a large role in whether markets go up or down. Investors are more likely to purchase stocks if they are convinced their shares will increase in value in the future. If, however, there is reason to believe that shares will perform poorly, there are often more investors looking to sell than to buy. Events that affect investor confidence include:
For example, the largest single-day decrease in the history of the Dow Jones Industrial Average (DJIA) took place on Sept. 17, 2001. The market "lost" (traded down) 7.1% of its value. This move is largely attributed to the Sept. 11 terrorist attacks in the United States, which created a lot of uncertainty about the future. Therefore, the market had many more sellers than buyers. (For related reading, see: How September 11 Affected the U.S. Stock Market.)
Interest rates are also believed to play a major role in the valuation of any stock or bond. There are several reasons for this, and there is some debate about which is most important. First, interest rates affect how much investors, banks, businesses and governments are willing to borrow, therefore affecting how much money is spent in the economy. Additionally, rising interest rates make certain "safer" investments (notably U.S. Treasuries) a more attractive alternative to stocks. (For related reading, see: How Interest Rates Affect the U.S. Markets.)