Why do stock prices move up and down?

The main reason for movements in a company’s stock price is due to supply and demand.

A share price usually goes up when…

  • A company’s performance exceeds expectations of the public.
  • Lots of people want to buy the shares to reap the rewards of the profits.
  • Not many people want to sell the shares.
  • There are not many shares left.

A share price usually goes down when…

  • A company’s performance is disappointing compared to expectations of the public.
  • Lots of people want to sell the shares.
  • Not many people want to buy the shares.
  • There are too many shares.

However there are several external factors that affect a company’s stock price. Very often news about a company will will drive the share price up or down. Let’s say a company announces they are expanding operations into a new market that has lots of new potential for growth – this might boost the price of the shares because shareholders will anticipate a higher rate of earnings growth. Similarly, if a company announced that there was a problem with a new highly anticipated product and its product launch was going to be delayed, the share price would likely go down because investors would be disappointed and expect less sales of the product. Usually a lot of uncertainty or fear will drive shares down. And a lot of optimism and excitement will drive shares up. Overall economic conditions can influence behavior of the markets overall and drive shares of most stocks up or down. When the economy is strong overall, shares are more likely to go up. When the economy is weak and there are bad economic circumstances such as recession, shares of most stocks will tend to go down. Others macro-economic factors influencing the stock markets include inflation rates, interest rates, employment rate and natural disasters. Other factors influencing behavior of the shares of individual companies include job cuts, company mergers and changes in company management to name just a few.


2 Responses to Why do stock prices move up and down

  1. dr tan says:

    when company increase productivity and reduce cost and increase market eg move to a new market

  2. Sunrit says:

    Supply and demand forces are ok. anyone can understand that. How does a stock exchange decide on “what price shall be displayed on the scroll??”
    Do they calculate a weighted avg of all the prices at which the registered brokers trade stocks?? How does OTC trading affect the exchange traded price? Suppose fund A calls fund B and negotiates to sell shares of company XX for $30?? how does this affect the exchange traded price of company XX????

    Thanks in advance..

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