What causes a stock’s price to change?

The amount of buying or selling of a given stock at a given time will have either a positive or negative impact on the stock’s price. Market participants make decisions to buy or sell a stock based on a number of factors.

Following business and economic news as well as setting up news alerts for stocks you own or are interested in trading will help you understand how stock prices behave.

News events

Publicly-listed companies are required to announce news that has an impact on their operations. Announcements by a company usually have an impact on its stock price. For example, if a manufacturing company announces a production disruption due to a labour dispute, natural disaster or parts shortage, investors will sometimes react by selling their shares if they think this is a bad sign for future earnings. This sudden selloff will push the price of the stock down. On the other hand, if a company announces a production milestone or an increase in the dividend paid by the stock, this could have the opposite effect, since investors may see that as a healthy sign for the business and begin buying the stock, thereby pushing the price higher.

Other news events can have an effect on stock prices. For example, an improving or worsening economic outlook (based on unemployment rates, GDP, and other measures) can move markets and the prices of individual stocks. The stock of a company that does business in a particular country can have its price affected by news about the economic or political situation there.

Commodity prices

Companies that produce raw materials and resources, such as oil, gas or lumber, can have their stock price affected by both positive and negative changes in a commodity price. A copper mining company, for example, may have no news to report, but its share price could be pushed higher by news of rising copper prices. Investors buying the stock in the hopes of profiting from the higher commodity price would be responsible for a higher stock price.

Financial results

A company’s quarterly or annual financial results can have a profound effect on the stock price. They tell investors whether or not a company is growing, give clues to what sort of earnings investors can expect in the future, and indicate whether a company is financially healthy or in trouble.

Equity analysts try to model and predict a company’s earnings in a given quarter or year, and issue estimates of what they think a company has earned before the company announces its results. If these estimates are overwhelmingly positive, investors often buy stock in anticipation of strong actual results. If estimates are overwhelmingly negative, investors may sell in anticipation of the company releasing weaker financial results.

When a company releases its results, it is said to “beat” or “miss” expectations. This can trigger further buying and selling, and the price of the stock will either rise or fall, depending how market participants view the results.

Takeover bids

Sometimes another company attempts to take over a publicly-traded company. For shareholders of the company that is the takeover target, this is usually a positive development, since the share price of the target company usually jumps when the takeover bid is announced. In order to get existing shareholders to part with their shares, the company that is attempting the takeover needs to offer them a premium price.