The International Business Machines Corp (IBM) is a technology and consulting corporation with its headquarters in New Yolk. The company operates all over the world. The company manufactures and sells computer middleware, hardware and software. It also offers consulting, hosting and infrastructure services. The company trades on the New Yolk Stock Exchange (NYSE) under the logo NYSE: IBM.

BY March 2007, IBMs stock price averages to $95. By May, the same year the price had risen to $100 and above. The price reached a high of $107.04 on 21st may 2007 and dropped to a low of 101.8 by early June (Yahoo Finance). In November the same year, the price fluctuated from a high of $113 to a minimum of $101. A drop of $12 is very high in the stock market.

In early January 2008, the price reduced to below $100, after being above $100 for three-quarters of the year 2007. The price, however, increased to a high of $127 by August the same year. In the month of October the same year, the price dropped to a low of $78 from a high of $107 in the same year (Yahoo Finance).  Between October 2008 and April 2009, the price was below $100. The price, however, increased to a high of $132 by the end of the year. There were no significant fluctuations in the year 2010, and the price was at $146 by the end of that year.

In the year 2011, the price continued to rise hitting a high of $194 by December. Since then there were no major fluctuations in the year 2015, when the price hit a low of $ 131 from a high of a high of $191 in 2014. Early this year the price was stagnant but increased by this month.  The highest recorded price was $215.8 on 14th March 2014, and the lowest recorded price is $71.74 on 20th November 2008 (Yahoo Finance).

Between August 2008 and April 2009, the IBM share price received major fluctuations.  Throughout the fall of the year 2008, phrases such as credit crisis, the mortgage crisis, and bank collapse and government bailout were headlines that appeared frequently. In this period, most of the major financial markets lost about 30% of their value.  It ranks among the most horrific period in the U.S. financial market (Kosakowski, 2008).

At this period, subprime mortgages increased. These mortgages targeted borrowers with less-than-adequate savings and less-than-perfect credit. This increased had started in 199 as the mortgage association endeavored to make home loans accessible. The borrowers were considered high risk thus; the loans had high-interest rates and variable payments. However, many argued that this was a disaster (Kosakowski, 2008).  To add to the mortgage risk, total consumer debt continued to increase during this period.

With an increase in housing prices, the mortgage-backed securities market gained popularity. Commercial investors took the chance and invested in the MBS.  MBS market is very profitable provided the homeowners continue paying their mortgages, and the housing prices continue to increase. However, the risk became real when the homeowners defaulted on their payments and the housing prices began to fall (Kosakowski, 2008).

Another popular investment at the time was credit derivatives popularly known as credit default swap (CDSs).  They are used as hedging against a company’s creditworthiness. The CDSs market was. However, unregulated meaning the issuers were not required to keep enough money in the reserves to cover a worst-case scenario.

All these investments finally led to a market decline. By March 2007, the entire subprime market was in trouble. Homeowners were defaulting at high rates as home prices fell.  Due to this, homeowners owed more than the value of their homes (Kosakowski, 2008). Most of them lost their homes and filed for bankruptcy. However, the market continued higher reaching a peak of 14, 164 in October 2007. The problem escalated in July 2008 when the United States fell into a recession.  By September 2008, the financial markets were down by 20%. The Government announced the takeover of Freddie Mac and Fannie Mae due to losses made in the subprime mortgage market.  One week later another company Lehman Brothers filed for bankruptcy.  Such buyout and takeovers continued in September 2008 (Kosakowski, 2008).

On 21^st September 2008, Morgan Stanley (NYSE: MS) and Goldman Sachs (NYSE: GS) converted to bank holding companies from investment banks. On 25th the same month, the Federal Deposit Insurance Corporation (FDIC) seized Washington Mutual, which had been exposed to the mortgage debt. On 29th, Citigroup (NYSE: C) acquired Wachovia the 4th largest bank in U.S at the time (Kosakowski, 2008).

These Events affected the share prices of all significant financial markets in the U.S. with all the takeovers and acquisitions and the market failure, trading volumes decreased. Investors were worried about their investments and other lost their investments. A good intention of making housing available to everybody led to a recession.  The higher the home prices went, the lenders got creative in maintaining the pace disregarding the consequences.

The price of stock in the financial market can be affected by different factors both internal and external. The internal factors relate to the company itself while the external factors relate to the world and national events. A major internal factor includes an announcement of favorable or poor earnings.  Favorable earnings increase the investors’ confidence leading to an increase in the price and vice versa for reduced earnings. When the expected earnings are more or less, the investors motivation is also lowered affecting the prices accordingly.

Issues with the management destroy the outward picture of the company. The investors lose trust with the management and are not willing to invest in the enterprise.  Those who have already invested move in to sell their shares and supply exceed demand leading to a low price. The same goes for scandals, accounting errors major layoffs and labor problems.   In cases of merger, it is not clear how the price will behave. The whole scenario will depend on how the investors will view the merger. If the merger is viewed positively, the price may increase.

An external factor includes political upheaval or war. In times of war, the economy is compromised and may fail. No one would wish to invest in a failed economy.  Everybody is trying to sell his or her shares, and supply and demand have to balance. Another factor is the currency crisis in the nation. If there is a currency crisis in any nation, the financial markets are the first to be hit. The domestic currency will automatically lose value leading to a low value of shares. Weather conditions that affect sales lead to the company announcing poor earnings and thus a fall in price.  In addition, when the interest rates are adjusted, the financial market is affected.

The external factors affect the price of stock more than the internal factors. This is because the company cannot control the external factors as it can control the internal factors. The company can control issues such as management issues, scandals, and labor problems as opposed to controlling war or weather conditions.  In 2008, more by external factors affected financial crisis in the U.S., the price of stocks. The mortgage and debt crisis were the primary causes of the financial failure. No single company could have controlled the situation.

I think it is difficult to predict changes in the stock price because all factors that can affect the stock price are always factored in the current price. Investors have the information about a company. Investors use this information when they are making decisions. To predict changes in price, one would have to know the unforeseen future events (Macpherson, 2012). Any effect of a known event is already factored in the prevailing price. The price can only be affected in this case by future events, which no one is certain off. All one can do is to predict the future events and try to predict the changes in the price of stock.

The financial markets are complicated. Different factors can lead to price fluctuations. An Economic crisis affects the financial market leading to a market failure. Any financial crisis increases the supply of shares in the financial market and reduces demand. This leads to high supply and low or no demand. This kind of a situation will lead to market failure. The forces of demand and supply are no longer working to strike a balance.

References

Macpherson, D. A. (2012). Macroeconomics: Private and Public Choice (14th ed.). Mason: Cengage Learning.

Kosakowski, P. (2008, November 03). The Fall Of The Market In The Fall Of 2008 | Investopedia. Retrieved March 19, 2016, from http://www.investopedia.com/articles/economics/09/subprime-market-2008.asp

Yahoo finance. (n.d.). IBM Historical Prices | International Business Machines Stock – Yahoo! Finance. Retrieved March 19, 2016, from http://finance.yahoo.com/q/hp?s=IBM

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