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Why Do Stock Prices Change?

A number of factors are responsible for a change in stock prices. We explain some of them here.

The demand for and supply of a particular stock is responsible for the price fluctuations it experiences over a period of time. In simple terms, if demand for a particular stock is higher than its supply, the price goes up. Similarly, if the demand is lower than the supply, the price goes down.

However, why does the demand for a particular stock fluctuate? What makes investors like or dislike a stock? There are several factors that trigger such a response.Listed below are a few of them.

One of the most important factors that influence stock prices in the long run is profit or earnings of the company in question.

Profit of the company

One of the most important factors that influence stock prices in the long run is profit or earnings of the company in question. If a company is doing well, it will expand, and its value will increase. Consequently, an increasing number of people would want to take advantage of such growth.

Company announcements

Depending on the type of news the company announces, its stock price is likely to  rise or fall. Favorable news like expansion plans, strong financials, appointment of new members on the board, etc. is likely to attract more buyers and take the price northwards. On the other hand, negative announcements like weak financials,quitting of critical members of the board, huge debts, etc. can bring the price down.

Economic outlook

If the economic condition of a country is weak, investors are likely to be wary,and move to safer investment options like fixed deposits or pension funds. During such a scenario, the overall stock market, and therefore, the share price of any given company is likely to fall. Similarly, a strong economic condition boosts stock prices.

Technical analysis

Technical analysis is a method of predicting the future movement of a stock price by studying its past movements. Most traders who actively participate in trading follow this method to buy and sell stocks. Hence, the outcome of this analysis affects the stock price significantly.

While the aforementioned points are the most important factors, others like interest rates, inflation and deflation, competition and industry outlook, etc. too play a crucial role in price fluctuations of a stock.

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