In the short term, stocks go up and down because of the law of supply and demand. Billions of shares of stock are bought and sold each day, and it's this buying and selling that sets stock prices.
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Imagine there are 1,000 people willing to buy one share of stock XYZ for $10, but there are only 500 people willing to sell one share of XYZ for $10. The first 500 buyers each snag a share for $10. The other 500 buyers who were left out then raise their offer price to $10.50. This higher offer price persuades some owners of XYZ who didn't want to sell at $10 to sell at $10.50. The stock price is now $10.50 instead of $10 since that was the price of the latest transaction.
What affects stock price?
What affects stock price?
High demand for a stock drives the stock price higher, but what causes that high demand in the first place? It's all about how investors feel:
- Market sentiment toward the stock.
- Market sentiment toward the industry.
- Market sentiment toward the stock market.
- Confidence in the economy.
The more confident investors are about a company's prospects or the potential for positive developments, the more likely they are to want the stock. Conversely, a loss of confidence can lead investors to sell, pushing down the stock price.
Factors that can affect sentiment toward a stock include quarterly earnings reports beating or falling short of expectations, analyst upgrades or downgrades, and positive or negative business developments.
Demand for a stock can also be affected by sentiment toward a particular industry. An electric vehicle company, for example, may see its stock price soar as investors snap up shares because those investors are confident in the future of the EV industry. A rising tide can lift all boats.
This goes both ways. If investors sour on an industry, every stock in that industry could suffer -- regardless of how each individual company is doing.
Confidence in the stock market can also push up demand and prices for individual stocks. If investors believe that stocks are a good investment, either because valuations are attractive or because the stock market has been trending upwards, an increase in demand for stocks can push up prices across the board.
The opposite is also true. A declining stock market can zap investor confidence and lead to more selling and lower stock prices, and high valuations can prompt some investors to buy fewer stocks or sell their holdings.
Opinions about the trajectory of the economy also play a role in setting stock prices. Investors may sell some stocks in anticipation of an economic slowdown. The widespread belief in a recovering or booming economy, on the other hand, can lead to an increase in demand for stocks.
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Pattern Day Trader
The Financial Industry Regulatory Authority, or FINRA, defines day trading specifically as buying and selling the same security on the same day in a margin account.
Why do stock prices change every second?
Why do stock prices change every second?
Stock prices are driven up and down in the short term by supply and demand, and the supply demand balance is driven by market sentiment. But investors don't change their opinions every second. So why, then, do stock prices change so fast?
The current stock price is nothing more than the price at which the last transaction took place. For many stocks, transactions are occurring every second the stock market is open.
Investors trade an average of 90 million shares of Apple (AAPL -1.06%) each day. Every time a block of shares is bought and sold, the stock price changes to reflect the latest transaction price. The sheer number of transactions ensures that the stock price fluctuates every second, even if there's been no change in market sentiment.
The big picture is what matters
The big picture is what matters
Long-term investors, like those of us at The Motley Fool, don't much care about the short-term developments that push stock prices up and down each trading day. When you have years or even decades to let your money grow, analyst reports and earnings beats are often fleeting and irrelevant. What matters is where a company will be five, 10, or 20 years from now.
In the long term, the value of a stock is ultimately tied to the future cash flows generated by the company. Investors who believe a company will be able to increase its earnings in the long runor who believe a stock is undervalued may be willing to pay a higher price for the stock today, regardless of short-term developments. This creates a pool of demand undeterred by day-to-day news, which can push the stock price higher or prevent big declines.
While a lot of ink is spilled about daily fluctuations in stock prices, and while many people try to profit from those short-term moves, long-term investors should be laser-focused on a company's potential to increase its profits over many years. Ultimately, rising profits push stock prices higher.
Understanding Portfolio DiversificationSpreading your money across industries and companies is a smart way to ensure returns.
Stock Market Basics for BeginnersIf you're just getting started investing, these basics can help guide you.
Timothy Green has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
FAQs
Once a company goes public on the stock market and its shares start trading on an exchange, the share price is determined by supply and demand. But over the long term, share prices are determined by the economics of the business.
What determines if a stock goes up and down? ›
For each share they buy, an investor owns a piece of that company. In large part, supply and demand dictate the per-share price of a stock. If demand for a limited number of shares outpaces the supply, then the stock price normally rises. And if the supply is greater than demand, the stock price typically falls.
What 10 stocks does Motley Fool recommend? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies.
What are Motley Fool's double down stocks? ›
"Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
What makes the stock market go up and down? ›
By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
What time of the day are stocks the highest? ›
Market volume and prices can and do go wild first thing in the morning, precisely the first 15 minutes. People are making trades based on the news. Power hour between 3:00 pm and 4:00 pm is also a very popular time. The best time to buy stocks is 9:30 am to 11:00 am EST because the market is most liquid.
Who keeps the money when a stock goes down? ›
Just as a high number of buyers creates value, a high number of sellers erodes value. So even though it might feel like someone is taking your money when your stock declines, the cash is simply disappearing into thin air with the popularity of the stock.
What stock will boom in 2024? ›
2024's 10 Best-Performing Stocks
| Stock | 2024 return through March 31 |
|---|
| Arcutis Biotherapeutics Inc. (ARQT) | 206.8% |
| Janux Therapeutics Inc. (JANX) | 250.9% |
| Trump Media & Technology Group Corp. (DJT) | 254.1% |
| Super Micro Computer Inc. (SMCI) | 255.3% |
6 more rowsApr 1, 2024
Sometimes they toss in a different company as the focus of this pitch, too, with similar language, so perhaps we'll find a surprise this time. So what do they mean by this “All In” buy signal? Basically, it just means a stock that they like so much, they've recommended it more than once.
What stock has the most potential to grow in 2024? ›
10 Best Growth Stocks to Buy for 2024
| Stock | Expected Change in Stock Price* |
|---|
| Meta Platforms Inc. (META) | -1.9% |
| JPMorgan Chase & Co. (JPM) | -3.4% |
| Tesla Inc. (TSLA) | 61% |
| Mastercard Inc. (MA) | 14.2% |
6 more rowsMar 25, 2024
2 Stocks That Can Double Again in 2024
- SoundHound AI and Sweetgreen are up 174% and 116% so far in 2024.
- SoundHouse AI is seeing its platform for conversational intelligence explode in popularity.
- Sweetgreen has quadrupled over the past year, but it's still a broken IPO with potential to harvest.
Penny stock scammers short-sell a stock and then make sure its price falls by spreading false and damaging rumors about the company. Investors hold a losing stock, while the short-sellers make money.
What is the stock double rule? ›
Do you know the Rule of 72? It's an easy way to calculate just how long it's going to take for your money to double. Just take the number 72 and divide it by the interest rate you hope to earn. That number gives you the approximate number of years it will take for your investment to double.
What is the 3 day rule in stocks? ›
In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.
How do you know if a stock will go up the next day? ›
Some of the common indicators that predict stock prices include Moving Averages, Relative Strength Index (RSI), Bollinger Bands, and MACD (Moving Average Convergence Divergence). These indicators help traders and investors gauge trends, momentum, and potential reversal points in stock prices.
How much do stocks fluctuate in a day? ›
On a typical day, the value of shares of stock doesn't move much. You'll usually see prices go up and down by a percentage point or two, with occasional larger swings. But sometimes, events can occur that cause shares to rise or fall sharply.
Why do stocks go down after good earnings? ›
The most common reason for a counterintuitive post-earnings move, though, is a company's forward guidance. It may sound obscure, but a stock's price is impacted by expectations for expectations.
Who decides a share price? ›
Stock prices are dependent on the forces of supply and demand. If you're not familiar with these, it simply means that prices will rise when there are more buyers (demand) than sellers (supply). And they will fall when there are more sellers than buyers.
Do stocks usually go up after earnings? ›
Because of the potential for relatively big price swings, investor returns can be heavily influenced by how a company's earnings report is received by the market. It is not unusual for the price of a stock to rise or decline significantly immediately after an earnings report.
