Why Stock Prices Move📉
Stock prices change every second the market is open. But why? Let's break down the forces at play.
The Fundamental Answer: Supply and Demand
At its core, stock prices move for one reason: more buyers than sellers = price goes up, more sellers than buyers = price goes down.
The Concert Ticket
Imagine tickets to a sold-out concert. Originally $100 each.
- If everyone suddenly wants to go, people bid higher. Tickets sell for $200, $300, $500.
- If the band cancels their opening act, some people lose interest. Tickets drop to $75.
The ticket itself didn't change—but how much people wanted it did. Stocks work the same way.
What Makes People Want to Buy?
1. Good Company News
- Strong earnings report
- New product launch
- Expansion into new markets
- Positive analyst ratings
2. Economic Optimism
- Low unemployment
- Growing economy
- Low interest rates
- Consumer confidence
3. Industry Trends
- Sector rotation (money flowing into tech, healthcare, etc.)
- New regulations that help the industry
- Technological breakthroughs
4. Market Sentiment
- General optimism ("bull market")
- Fear of missing out (FOMO)
- Momentum (stocks going up tend to keep going up short-term)
What Makes People Want to Sell?
1. Bad Company News
- Missed earnings expectations
- Product failures or recalls
- Management scandals
- Losing market share
2. Economic Concerns
- Recession fears
- Rising interest rates
- Inflation worries
- Geopolitical tensions
3. Industry Headwinds
- New regulations that hurt the industry
- Disruption from competitors
- Commodity price spikes
4. Market Sentiment
- General pessimism ("bear market")
- Panic selling
- Momentum (stocks going down tend to keep going down short-term)
Key Takeaways
- Prices move based on supply and demand
- Buyers push prices up, sellers push prices down
- Both company-specific and market-wide factors matter
Short-Term vs. Long-Term Price Drivers
| Time Frame | Main Drivers |
|---|---|
| Minutes/Hours | News, rumors, trading algorithms |
| Days/Weeks | Earnings reports, economic data, sentiment |
| Months/Years | Company fundamentals, industry trends |
| Decades | Business quality, competitive advantages, economic growth |
The Key Insight
In the short term, stock prices are driven by emotion and news. In the long term, they're driven by actual business performance. This is why patient investors tend to win.
Price vs. Value
Here's a crucial concept:
- Price = What people are paying right now
- Value = What the company is actually worth
Sometimes price > value (overvalued). Sometimes price < value (undervalued).
Value investors (like Warren Buffett) try to buy when price < value and wait for the market to recognize the true worth.
This is exactly what ShareValue.ai helps you find—stocks where the price might be below the true value.
Why This Matters for You
Understanding why prices move helps you:
- Stay calm during drops — You know it's often sentiment, not fundamentals
- Avoid FOMO — You know rising prices don't always mean good value
- Find opportunities — Good companies sometimes get unfairly punished
- Think long-term — Short-term noise doesn't change long-term value
Price Movement Traps
- Assuming a dropping price means the company is bad
- Assuming a rising price means the company is good
- Trying to predict short-term price movements
- Reacting emotionally to daily price swings
Next up: Where do stocks actually trade? Let's explore stock exchanges.