If there’s one constant in the stock market, it’s that the stock market is never constant. It will continue to fluctuate every single day.
This means share prices are constantly rising and falling. Consequently, so do the market values of stocks and companies. This happens as a result of changes in the supply and demand for the stock.
To break it down further, when more people want to buy a certain stock than the number of people who want to sell it, the demand – and the stock’s price – will go up. However, when the sellers outnumber buyers, the price drops.
The obvious question, then, is: What makes people want to buy or sell a stock?
There’s no one answer to this loaded question. Stock fluctuations can be caused by any number of factors.
Here are some reasons a stock may go down:
- Earnings are dropping
- Sales are slipping
- A top executive leaves the company
- A well-known investor sells their shares of the company
- A lawsuit is filed against the company
- A market analyst downgrades their recommendation of the stock
- The company loses a major customer
- Many people sell their shares of the company
- A company factory burns down
- Other stocks in the same industry go down
- Another company introduces a better product
- There’s a supply shortage and the company can’t meet demands
- Scientists discover that the product isn’t safe
- A new law impacting sales or profits is introduced
- Negative rumors begin to circulate
- Local acts of terror cause uneasiness
- Concerns over inflation or deflation
- Fluctuating interest rates
- Technological changes
- Natural disasters
- Extreme weather fluctuations
- Negative company reviews on social media
- Political elections cause directional uncertainty
Here are some reasons a stock may go up:
- Increases in earnings and sales
- The company is under great new management
- An exciting product or service is introduced
- The company lands a big contract
- There’s a great review of the company, or new product, in the press or social media
- Scientists discover the product is good for something else
- A well-known investor is buying shares
- Many people are buying shares
- An analyst upgrades their recommendation for the company
- Other stocks in the same industry go up
- A competitor closes shop
- The company wins a lawsuit
- The company expands globally
- The industry is hot
- The company’s product is in high seasonal demand
- Positive rumors or speculation
- Optimistic market conditions
- A fantastic marketing campaign
This is just a small sampling of some factors that can make a company’s stock go up or down. It can happen for any reason at all. What’s important to remember, though, is that investing will never be a smooth ride – fluctuations are a normal part of the market. No shareholder is immune. Be prepared for your stocks to fluctuate, sometimes dramatically. When it happens, unless conditions in the market are extreme, you simply need to hold on and wait for things to change course.
Have you ever drastically changed your opinion about a company because of rumors or bad press? What about other reasons? Share your story with us in the comments!