What Creates Trends?

• Government policy. When economic policy is to target a growth rate of 3 percent, then the Federal Reserve (the Fed) raises and lowers interest rates to accomplish this. Lowering rates encourages business activity. Raising rates controls inflation by dampening activity.
• International trade. When the United States imports goods, it pays for it in dollars. That is the same as selling the dollar. It weakens the currency. A country that increases its exports strengthens its currency.
• Expectations. If investors think that stock prices will rise, they buy, causing prices to rise. Consumer confidence is a good measure of how the public feels about buying.
  
• Supply and demand. A shortage, or anticipated shortage, of any product will cause its price to rise. Too much of a product results in declining prices. These trends develop as news makes the public aware of the situation.