Now picture this – you are on Wall Street and you see all these flashy numbers on the board that change every time you turn around. Sounds like a familiar movie scene? Now, you may ask: Why in the world do these numbers change all the time?
The short answer is two words: Supply and Demand. Earnest sellers cause prices to go down. In order to sell their shares quickly, they are likely willing to accept a lower price. On the other hand, earnest buyers cause the prices to go up. These buyers are drawn to bid higher prices than the current stock price. Think of the stock market as one large auction and the stock price is the price sellers are willing to receive and buyers are willing to pay.
Now, we hope this would be as simple as this, don’t we? However, what pushes people to buy and sell? Well, there is really no single answer to that. The perception of the buyers and sellers of stocks is driven by a lot of factors. So, let’s decode the main factors that affect investors’ decisions.
1. Company Earnings
This is probably the most solid basis for stock prices. After all, who would not want to invest in a company that is bringing in the bucks?
They say no press is bad press, but this is not applicable to the stock market. One bad public announcement or news piece could cause a decline in company’s stock price.
3. Growth Potential
A company’s growth potential based on forecasts, analyst reports and media greatly affect the stock prices and investor perception.
4. Bank and Government Policies
When the relevant branches of the government or the central bank make huge decisions, or release and change new policies, everyone does not have a choice but to notice and comply. The market generally reacts to these decisions and adapts.
5. Economic Data
Economic data releases such as labor rates, consumer spending, GDP (gross domestic product – basically the total value of the goods and services in a country during the year) and interest rates are important factors that investors consider when deciding to buy or sell stocks. When the data is better than economists expect, the stock market increases in value. Alternatively, when these economic indicators are worse than expected, the overall market decreases in value.
6. Wars and Conflicts
Terrorists might take over or blow up an oil field. Activists may start protesting child labor practices. A refugee crisis occurs which causes multiple nations to argue. These wars and conflicts eventually take their toll on stock prices before you know it.
Like most life decisions, the decision to buy or sell stocks is sometimes driven by rumors. Rumors like “the CEO plans to step down”, “the CFO may be accused of fraud”, “management might decide to sell the company” or “interest rates may increase in the next quarter”, whether credible or not, actually impacts investors’ decision-making process.
8. Individual Lifestyle
Let’s say you’re the type of person who likes to go on trips to Europe or Asia during December. Or the one who likes to spend the holidays with the family which lives a thousand miles away. December could hurt the bank (we’ve all been there!), and there are some people who like to sell their shares before the holidays to keep the money rolling or for tax purposes.
We know, this one’s kinda odd! However, gloomy weather could affect stock prices in plenty of ways! For example, the farmland of an agricultural company may get hit with a bad storm, or worse, a drought.
There could be many reasons why stock prices change every second. Some of those reasons are not listed here. But be prepared when you’re buying stocks and do plenty of due diligence before making investing decisions. For further learning, make sure to check out our article on the top 10 fundamental analysis indicators for all investors and the top 10 technical analysis indicators.