Stock Basics: What Causes Stock Prices to Change?

The following is a guest blog post:

The movement of the stock market is not something that can easily be predicted. That is true of the market at large, and individual stocks as well. This is hardly breaking news, though; if more people understood the intricacies of the market, then more individuals would be able to make their fortunes that way. Unpredictability is part of what defines the market, whether you are trying to figure out a Boeing stock price forecast or what Apple stock is going to do over the next quarter. If you’re trying to figure out the driving forces behind the market, though, here is a brief tutorial.

Individual Stock Concerns

Part of what drives the market relates to what is happening, or what is rumored to happen, with each stock. If a partnership with another company is rumored, then a stock might go up. That is likewise true if there is talk of a smaller company being absorbed by a larger one. However, if there is negative press surrounding a brand, that’s likely to cause the stock to plummet. For instance, if the president of the stock’s company is about to be indicted for fraud, or the company was just held responsible for an environmental disaster, you’re going to be looking at a steep loss of value for that stock.

National Factors

What’s happening in the United States is going to affect what’s happening with U.S. stocks. If the economy is humming along, the nation is not currently at war with any other countries, and it is generally a time of prosperity, then most stocks will rise steadily, and the market as a whole should do well. However, the inverse of that is also true. If there is saber rattling by U.S. leaders and talk of the nation getting involved in a conflict overseas, that will often lead to the market falling. The possibility of new trade tariffs being imposed or something of that nature could also do it.

Worldwide Factors

U.S. stocks doing poorly is not something that is confined to what’s happening on American soil, though. If war breaks out elsewhere, causing a significant part of the world to destabilize, that can negatively affect American stocks. It’s what is sometimes referred to as the “pigeon effect.” Think of the U.S. stocks (or even the non-American stocks) like pigeons milling about on the ground. One of them gets wind of a cat in the area, this being the figurative term meaning that there is trouble out in the world somewhere, a war, a disturbing environmental report, etc. All the pigeons panic and take flight, reflected by the majority of stocks dropping. Once things have calmed down, the pigeons land again, meaning that stock prices stabilize.

The market is constantly going through corrections, and if you study it for long enough, you may be able to predict some of them. However, volatility is always going to be part of the market, which makes investing in individual stocks a risk. It’s gambling, but you can at least be an informed gambler if you know the general trends that the market usually follows.

2 thoughts on “Stock Basics: What Causes Stock Prices to Change?

  1. Too surfacy. More deaph woul be nice. For ex how fed rate hike effects the stock market. In general stock market is just a big bunch of rich people hiding under their brokers exchanging virtual money in their bank accounts for virtual stocks in their broker accounts. Trying to outsmart one another (buy low sale high) and trying to unserstand and project one another behaviour (technical analysis) 😉
    p2035 recently posted…Y2019 GoalsMy Profile

    • Hi p2035,

      A little pessimistic view of the markets you have. Not that I’m not saying it’s a “big bunch of rich people” doing what they’re doing behind the scenes but the little guy can still hop aboard the investing train and enjoy the fruits of being a long term holder of stocks. Of course, stock prices change based on many different factors and, of course, larger investors can sway the market and prices in certain directions but that doesn’t mean we can’t all profit from it.

Leave a Comment

CommentLuv badge

This site uses Akismet to reduce spam. Learn how your comment data is processed.