5 Factors That Change Stock Prices
Author: James Clark
Stocks are greatly affected by micro and macroeconomic forces in the market. Let’s check out the 5 main factors that change stock prices.
Stock prices fluctuate every due to several market forces mainly driven by supply and demand. If there are more buyers than sellers, prices will go up. Conversely, if more people want to sell their stocks, there would be a surplus of stocks, leading to reduced prices. While most stock investors understand supply and demand, not all of them fully comprehend what’s happening behind the scenes to cause these fluctuations.
In this post, we’ll share 5 factors that change stock prices so you can include them in your trading strategy to make better decisions.
5 Factors That Affect Stock Prices
1. Industry Performance
Depending on the volatility, the stock prices of companies within the same sector will compete with each other as most companies in the same industry are affected similarly. However, sometimes, one company’s loss is another company’s gain. For example, if a company faces a scandal or sudden drops in sales, the competitor’s stock price can go up.
2. Investor Sentiment
Investor sentiment refers to trading confidence and can cause the market to fluctuate either bullishly or bearishly. For example, a strong stock market with rising stock prices will attract more traders to invest. Conversely, a bearish trend where stock prices rapidly fall leads to investors selling and cashing out.
3. Inflation and Deflation
Inflation is the rate of increase in consumer prices, which can potentially slow sales and reduce profits, depending on the sector. For example, the Bank of America can raise interest rates to slow down inflation and as a consequence, bring down stock prices. Moreover, defensive stocks that belong to companies in the consumer staples and utility industry can benefit from higher prices due to lower interest rates. Secondly, deflation leads to falling prices, and therefore, lower profits for companies. In this scenario, investors might sell their shares and diversify by investing in bonds and options for fixed income.
4. Interest Rates
The Federal Government can raise or lower interest rates according to the political and economical climate of the economy; this is referred to as monetary policy in which companies that borrow money to expand their business accumulate more debt due to higher interest rates. As a result, profits drop, and prices rise to make up for the shortfall.
5. Company Performance and Events
Stock prices can be affected by company-specific factors easily, such as:
The launch of a new product or service
New marketing campaigns
Employee layoffs and branch closings
Acquisitions or mergers
Management or leadership changes
Scandals or internal gossip
Stock price changes are inevitable, and there’s no way to predict which direction they’ll go or the magnitude of change. However, by drawing charts, studying past price movements, and using the 5 factors mentioned above, stock investors can determine when to buy and sell to sustain their earnings and portfolio growth.
1. HP Inc. (HPQ)
2. Eaton Corporation, PLC (ETN)
3. Flex Ltd. (FLEX)
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