Why stock prices change

However, if the company's earnings have failed to meet projections or if the company has earned less than what it was projected to earn, it's share price will most likely fall. If the company reports some good news such as an interest-hike or if it acquires another company or breaks into a new market, it is most often seen to be in good financial health.

This could result in a stock price hike. When you hear traders talk about "at the very start of the day markets are still reacting to news and may be very volatile" this news is what is being referenced. Similarly, a company that has to sell part of its stake, let go of employees or close down branches will be seen to be experiencing financial struggle or a downturn in its earnings.

People will tend to sell such stocks for fear that the price of its shares will be driven down drastically or worse, that the company might close down, rendering the shares worthless. But these are usually knee-jerk reactions. It is this very paranoia that shares might be rendered worthless when the company reports bad news that results in people dumping stock.

This results in the share price being undervalued. Some expert traders watch for moments of undervaluation and will try to buy in at this time. They do this because they have made a calculated guess that the company will perform better in the near future. The value of a company is its market capitalization, which is the stock price multiplied by the number of shares outstanding. To further complicate things, the price of a stock doesn't only reflect a company's current value—it also reflects the growth that investors expect in the future.

The most important factor that affects the value of a company is its earnings. Earnings are the profit a company makes, and in the long run no company can survive without them. It makes sense when you think about it.

If a company never makes money, they aren't going to stay in business. Public companies are required to report their earnings four times a year once each quarter. Wall Street watches with rabid attention at these times, which are referred to as earnings seasons.

The reason behind this is that analysts base their future value of a company on their earnings projection. However, it seems like, at any given moment I, and anyone else, can buy or sell any number of shares at the current stock price. So what is the actual mechanism that determines the change in stock price?

It doesn't seem like the stock price would move up unless all available shares were already purchased, or down unless there were people willing to sell shares for less than the market asking price at any given moment.

The answer is that stock prices are indeed determined by supply and demand. Nobody can predict every element that goes into stock price fluctuations , though many try. But for investors interested in adding individual stocks to their portfolio, it can be helpful to have a basic understanding of how to research stocks and monitor stock prices.

That starts by paying attention to the news cycle, market conditions — and even your gut. Nearly any and all daily happenings can influence stock prices. The market, after all, is a reflection of how companies and industries are valued in our society.

Being the fickle creatures that we are as human beings, our ideas of value change all the time. Investing always carries some risk. When investors, particularly at the hedge-fund level, sense cause for concern, we can watch that drama play out on the stock market.

But one factor influences share prices more than any other: Profit. Ahead, we break down how the many factors work together to influence stock prices. The two most fundamental factors boil down to profitability and the valuation ratio, says Juan Pablo Villamarin , CFA and senior investment analyst at Intercontinental Wealth Advisors.

Technical factors can also include the time of day or specific days of the week a trade takes place compared to other days and times, says Villamarin. In addition, the price movement of one stock compared to the movement of another stock in the same industry or business sector can also influence the stock price.

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.