What moves a stock price
A stock price moves when buyers and sellers change their view of what a company is worth. Here are the main forces behind those changes.
A stock price is the last price at which a buyer and a seller agreed to trade. It moves when more people want to buy than sell, or the other way around. Behind that simple idea are many forces that change how investors value a company.
Buyers and sellers
At any moment, some investors want to buy a stock and others want to sell it.
If buyers are more eager, they offer higher prices to get shares, and the price rises. If sellers are more eager, they accept lower prices, and the price falls.
Everything else on this page matters because it changes how eager buyers and sellers are.
Profits and expectations
Over the long run, the main thing investors care about is how much profit a company can make.
Earnings are a company's profit. Public companies report them every quarter. See how to read an earnings report.
What matters most is how results compare with expectations. Analysts publish forecasts for sales and profits, and the share price already reflects much of what investors expect.
- A company can report higher profit and still see its shares fall, if the result was below what investors expected.
- A company can report a loss and see its shares rise, if the loss was smaller than expected.
Guidance, which is what a company says about its own future results, often moves the price as much as the results themselves.
Valuation
Valuation is how much investors are willing to pay for each dollar of a company's profit. A common measure is the P/E ratio.
A stock price can rise even if profits do not change, simply because investors become willing to pay more for those profits. It can also fall for the opposite reason.
Interest rates
Interest rates affect almost every stock.
- Higher rates make borrowing more expensive for companies and consumers.
- Higher rates make safer investments, such as bonds, more attractive compared with stocks.
- Higher rates reduce the value investors place on profits expected far in the future.
That is why decisions by the Federal Reserve and the Bank of Canada can move the whole market. See how interest rates move stock prices.
The economy
Reports on jobs, inflation and GDP change what investors expect for company sales and for interest rates. A strong economy can help profits. It can also lead to higher rates. So the market's reaction to economic news is not always what you might expect.
Company news
Many events specific to one company can move its shares:
- New products, or problems with existing ones
- Changes in leadership
- Mergers and takeover offers
- Lawsuits or regulatory decisions
- Changes to the dividend
- Share buybacks or new share sales
Sector and commodity moves
Companies in the same sector often move together, because they face the same conditions. See the 11 stock market sectors.
For some companies, a commodity price matters a lot. Energy stocks often follow oil prices. Gold miners often follow the price of gold. This is one reason the TSX can move differently from US markets.
The whole market
Sometimes a stock moves mostly because the whole market is moving. On a day when most stocks fall, even a company with no news of its own will often fall too.
Large funds that track indexes buy and sell many stocks at once. When money flows into or out of those funds, many stocks move together.
Mood and attention
Investor mood can shift prices in the short run. Fear can lead to fast selling. Excitement can lead to fast buying. News coverage and social media can draw sudden attention to a stock.
These moves can happen without any change in the business itself. They can also reverse quickly. See what volatility means.
Short-term vs long-term
In the short run, prices can move for many reasons, some of which have little to do with the business. Over longer periods, share prices have tended to follow a company's profits more closely. This is a general pattern, not a promise for any one stock.
Things that do not change value
Some events change the share price without changing what a shareholder owns.
- A stock split lowers the price per share but gives you more shares.
- On the ex-dividend date, the price usually drops by about the dividend amount.
The short version
- Prices move when buyers and sellers change how eager they are.
- Results compared with expectations matter more than results alone.
- Interest rates and the economy affect almost every stock.
- Company news, sector trends and commodity prices move individual stocks.
- Short-term moves can come from mood and attention, not just the business.
This is general information, not investment advice.
Updated