Wednesday, 10 May 2017

Investopedia: What are the primary factors that affect the market price of stocks?

« Advisor Insights
What are the primary factors that affect the market price of stocks?

Adam Droker
Droker, Adam
Bellevue, WA
100% of people found this answer helpful

A stock is basically fractional ownership of a company.  Like buying a business you as the buyer will look at the underlying fundamentals of the company (Earnings, Balance Sheet, Cash Flow Statement, Etc.).  Growth is in earnings and sales are factors.  There are a lot of variables.  The price where buyers are willing to buy and sellers are willing to sell (supply meets demand).
Was this answer helpful?
John Barringer
Barringer, John
Denver, CO
100% of people found this answer helpful

At the most fundamental level, the price of a stock is, in the short run, the function of supply and demand. Supply is represented by the sellers. Demand is represented by buyers. If sellers exceed buyers, perhaps because there has been bad news about the company's prospects, the price of the stock will fall. If, on the other hand, buyers are more numerous than sellers due to optimistic expectations about the company, the price will rise. This price behavior occurs because, at any one time, there is a fixed number of shares available to transact. Buyers purchase shares from sellers and vice versa. Price movements prompt buyers and sellers to act.

When selling takes over and the price of a stock falls, the movement continues until the stock gets inexpensive enough to begin to attract buyers searching for a bargain. The same thing happens in reverse when a stock rises above its previous price. At some point, share owners decide that they have met their profit expectations and offer their shares for sale. Buyers convinced that the stock price can still go higher show up to buy.

Market makers in over the counter stocks and specialists in exchange listed stocks act as buyers and sellers in the short run to even out the volatility of price changes during market trading hours. Unlike most investors, these professionals are indifferent about the long-term prospects of the company because they only exist to match buyers and sellers during trading hours.
Was this answer helpful?
4 hours ago
Russell Wayne
Wayne, Russell
Weston, CT

Great question, especially because there are distinctly different factors affecting the market prices of stocks in the short term and the long term.  Let's start with the short term.  Whether it's one day, a week or perhaps even a month, stocks are primarily affected by changes in investor psychology.  If, for example, there's an important political event, perhaps a development that may impact a company over an extended period of time or perhaps an earnings surprise, whether positive or negative, that could prompt a substantial move in the price of a stock.  Yet the reality is that the value of stocks is primarily related to the underlying profitability of companies.  As profits climb over time, market prices will rise.  There will not be a linear relationship, but over long periods the relationship will be significant.  Over limited periods, it would be highly unusual for there to be a signficant change in underlying profitability.  So as prices go up and down in the interim, the key factor would be changes in how investors evaluate companies, not actual changes in the companies' results.
Was this answer helpful?
B. Chase Chandler
Chandler, B. Chase
Brentwood, TN

There are quite a few, but the primary factor is buying and selling pressure. This is known as the process of "price discovery" - i.e. the number of buyers vs. sellers and the 'ask' (investor's buying price) vs. the 'bid' (to sell). Think of it like an auction... investors will offer some price to buy and sellers will offer some price to sell, until they land on the agreed upon price. But this is happening very quickly with 1,000's of buyers and sellers. In essence, the market price is the transaction price at which the most buyers are willing to buy and/or the most sellers are willing to sell.

One other major factor is volume (or liquidity). Higher daily volume typically leads to higher prices because the security is percieved to be easier to get out of if needed.
Was this answer helpful?
4 hours ago
Steven Lewis
Lewis, Steven
Raleigh, NC

There are several but the 'MAJOR' indicators appear to be:

    Interest Rate Announcements +/-
    A specific Industry/Sector negative or positive announcement such as Microsoft announcing a positive increase in their Cloud business which can push the Information Technology sector higher as well as Microsoft
    Industry expectations on earnings
    Analysts expectations such as: Two weeks ago Ford [F] announcing nearly a 35% dropoff on Q1 earnings for 2017 from Q1 2016.  HOWEVER, the drop was better than what the analysists expected so the stock rose nearly 4%.  Starbucks [SBUX] did not meet analysists expectations thus the stock fell nearly 4% that same day
    Government/FDA contracts not providing approval for a drug can send the pharmaceutical stocks down
    Jobless Claims +/-
    Legislation such as a tax reduction or tax increase..these are very short term however and what effects it has on the Markets does not seem to last long
    Middle East issues say on oil and OPEC; i.e. cutting production or increasing production

Was this answer helpful?
Investopedia does not provide tax, investment, or financial services. The information available through Investopedia’s Advisor Insights service is provided by third parties and solely for informational purposes on an “as is” basis at user’s sole risk. The information is not meant to be, and should not be construed as advice or used for investment purposes. Investopedia makes no guarantees as to the accurateness, quality, or completeness of the information and Investopedia shall not be responsible or liable for any errors, omissions, inaccuracies in the information or for any user’s reliance on the information. User is solely responsible for verifying the information as being appropriate for user’s personal use, including without limitation, seeking the advice of a qualified professional regarding any specific financial questions a user may have. While Investopedia may edit questions provided by users for grammar, punctuation, profanity, and question title length, Investopedia is not involved in the questions and answers between advisors and users, does not endorse any particular financial advisor that provides answers via the service, and is not responsible for any claims made by any advisor. Investopedia is not endorsed by or affiliated with FINRA or any other financial regulatory authority, agency, or association.
© 2017, Investopedia, LLC. Feedback All Rights Reserved Terms Of Use Privacy Policy
Post a Comment