Ever wondered what moves a stock price?
Constant fluctuation of stock prices attributes to the risk an investor undertakes whenever he parks his money in a particular stock. There are many factors that can lead to the price of a stock rising or falling, and before moving on to become some stock guru.
Here are the 4 basic forces that move a stock price:
Company News And Performance
There is a company behind every stock and the company’s news and performance affects the price of a stock.
Any development within the company can be a push or pull factor for the stock price. When reading the news of a particular company which you have vested in, here are some of the activities to look out for:
- Earnings report
- Mergers and acquisitions
- Employee layoffs
- Introducing new product or starting a new research and development
- A change in management
- Accounting errors/ Fraud/ Scandals
Some of this news may come as a surprise, and the more unexpected it is, the more volatile the stock price.
Market Sentiment Or Hype
Being humans, investors tend to have their opinion on certain stocks.
If the investors’ confidence on a certain stock is growing, the demand for the stocks of a particular company increases. This will lead to the price of a stock going up. Such scenario is usually described as bullish, and the opposite being bearish.
Performance Of The Industry
Stock prices of companies usually move in the same direction as each other when it is news regarding the industry they are in. An example being, if the banking sector is doing well for the country, the stock prices of the banks will tend to perform well too.
Economic Factors
There are numerous macroeconomic factors that will have an impact on stock prices. Factors such as interest rates changes, inflation, economic growth and unemployment can affect the stock market as a whole.
Companies generally hope for economic growth, indicating a better possibility of higher earnings. Inflation usually leads to higher consumer prices, slowing economic growth. Falling unemployment, on the other hand, indicates a possible economic growth. It is important for investors to take extra notice of some of these numbers as an indicator to predict the possible movement of the stock market.
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