Trends — both historically from the company and an industry as a whole — are considered technical factors. In January , for example, Apple shares fell in price despite the company reporting record quarterly profits.
Things happening in the world at large can also affect stock prices. The first was in March and the most recent was this summer as the Delta variant surged around the country, causing traders to worry about market recovery. Sentiment drives demand, which also influences supply.
Psychology is critical for market dynamics. There are several theories that try to explain how market sentiment can drive the supply and demand of stocks:.
The Behavioral Financial Theory: This theory looks at psychological factors when analyzing financial markets.
Some investors act on emotion and in some cases, overconfidence in a particular security or asset. These reactions can cause biased investing decisions, potentially hurting your investment.
The Animal Spirit Theory: This theory assumes that people act on instinct in situations of uncertainty, the same way animals are said to operate. In turn, actions — like making moves on the stock market — are also driven by instinct. When the market is good, investors will buy. When the market is bad, investors will sell. The lower the VIX, the lesser the fear. When the market is stressed, VIX goes up. The VIX averaged Keep in mind that even with careful research, investing always carries some inherent risk.
Technical factors include the following. We mentioned it earlier as an input into the valuation multiple, but inflation is a huge driver from a technical perspective as well. Historically, low inflation has had a strong inverse correlation with valuations low inflation drives high multiples and high inflation drives low multiples.
Deflation , on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies. Company stocks tend to track with the market and with their sector or industry peers. Some prominent investment firms argue that the combination of overall market and sector movements—as opposed to a company's individual performance—determines a majority of a stock's movement. For example, a suddenly negative outlook for one retail stock often hurts other retail stocks as "guilt by association" drags down demand for the whole sector.
Companies compete for investment dollars with other asset classes on a global stage. These include corporate bonds , government bonds, commodities , real estate, and foreign equities. The relationship between demand for U. Incidental transactions are purchases or sales of a stock that are motivated by something other than belief in the intrinsic value of the stock.
These transactions include executive insider transactions, which are often pre-scheduled or driven by portfolio objectives. Another example is an institution buying or shorting a stock to hedge some other investment.
Although these transactions may not represent official "votes cast" for or against the stock, they do impact supply and demand and, therefore, can move the price. Some important research has been done about the demographics of investors.
Much of it concerns these two dynamics:. The hypothesis is that the greater the proportion of middle-aged investors among the investing population, the greater the demand for equities and the higher the valuation multiples. Often a stock simply moves according to a short-term trend. On the one hand, a stock that is moving up can gather momentum , as "success breeds success" and popularity buoys the stock higher. On the other hand, a stock sometimes behaves the opposite way in a trend and does what is called reverting to the mean.
Unfortunately, because trends cut both ways and are more obvious in hindsight, knowing that stocks are "trendy" does not help us predict the future. Liquidity is an important and sometimes under-appreciated factor.
It refers to how much interest from investors a specific stock attracts. Wal-Mart's stock, for example, is highly liquid and thus highly responsive to material news ; the average small-cap company is less so.
Trading volume is not only a proxy for liquidity, but it is also a function of corporate communications that is, the degree to which the company is getting attention from the investor community. Large-cap stocks have high liquidity—they are well followed and heavily transacted. Many small-cap stocks suffer from an almost permanent "liquidity discount" because they simply are not on investors' radar screens. While it is hard to quantify the impact of news or unexpected developments inside a company, industry, or the global economy, you can't argue that it does influence investor sentiment.
The political situation, negotiations between countries or companies, product breakthroughs, mergers and acquisitions, and other unforeseen events can impact stocks and the stock market. Since securities trading happens across the world and markets and economies are interconnected, news in one country can impact investors in another, almost instantly.
News related to a specific company, such as the release of a company's earnings report, can also influence the price of a stock particularly if the company is posting after a bad quarter. In general, strong earnings generally result in the stock price moving up and vice versa.
But some companies that are not making that much money still have a rocketing stock price. This rising price reflects investor expectations that the company will be profitable in the future. MP Materials may not be the lowest-cost miner of rare earth metals, admitted Jefferies this morning in a note covered by StreetInsider. Yahoo Finance's Julie Hyman expains.
Dow 30 36, Nasdaq 15, Russell 2, Crude Oil Gold 1, Silver CMC Crypto 1, FTSE 7, Nikkei 29, Read full article. More content below. Nick Sciple, The Motley Fool. July 2, , AM. In this article:. A full transcript follows the video. Story continues.
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Careers IG Group. Inbox Community Academy Help. Log in Create live account. Related search: Market Data. Market Data Type of market. Learn to trade Strategy and planning What causes share prices to change?
What causes share prices to change? How supply and demand affect share prices Supply and demand affects the appeal — and, ultimately, the price — of shares. Supply factors that affect share prices Supply factors that affect share prices include company share issues, share buybacks and sellers. Company share issues A share issue is when a company releases new shares to the public. Share buyback A share buyback is when a company buys back its own shares from investors to reduce supply.
Sellers Sellers are the investors responsible for pushing shares back into the market, increasing the supply. Demand factors that affect share prices Demand factors that can affect share prices include company news and performance, economic factors , industry trends, market sentiment and unexpected events such as natural disasters. Expected and unexpected company news Any news surrounding a company — expected or unexpected — can cause movement in its share price.
Economic factors Economic factors including interest rate changes, financial outlook and inflation all affect share prices. Industry trends Industry trends often determine the price of shares because companies in the same industry often perform similarly and are subject to the same pressures.
Market sentiment Market sentiment refers to the overall feeling that traders have about an asset. How to analyse share price changes To analyse share price changes, you can employ fundamental and technical analysis. Technical analysis Technical analysis i s a means of using historical charts to predict share price changes. Seize a share opportunity today Go long or short on thousands of international stocks. Increase your market exposure with leverage Get spreads from just 0.
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