Stocks are valued based on how much people are willing to sell and buy them for in a market. When those who are selling are willing to sell it at a cheaper price than what the stock used to be valued at, the price of that stock falls. Why this happens, however, is a relatively open question. No one can offer the precise answer to why stocks are valued the way they are. A number of factors are known to influence prices, however, and although the relative significance of these factors may differ from market to market, they nonetheless tend to be able to explain a large part of the changes in the values of stocks. Below I shall list a few of these.
Industry performance
Whether the numbers delivered by an industry are better or worse than expected, influences the stock prices of that company. Numbers may be red without leading to reduced prices, but if they are much more disappointing than what had been anticipated, consequences can be quite high. Even numbers from similar industries can be influential in determining stock prices. If one wheat company fares poorly, the market anticipates that it is not alone and demand for similar stocks falls too.
Business news
If a company is rumored to be securing a grand deal – or a major government order – the stock value of that company’s stocks is likely to increase. If the company is rumoured to be taken over by another company, the same reality applies. The reason is that stocks are assumed to get a boost by the news and thus people buy stocks.
The market sentiment
The sentiment in a given market affects the prices of stocks that are within that market. Faith can be low in just one company that deals with wheat, but it is far from unlikely that the whole market is struck by negativity if one company is, and a single company can sometimes pull down the prices of other stocks within the same market. Likewise, if green energies are popular, it’s likely that a lot of green energy companies will be doing well because there is a positive mood towards those companies.
The federal funds rate
The federal funds rate dictate interest rates and these determine the access to credits in the economy. When the federal funds rate changes in ways not anticipated, stock prices may be affected in positive or negative ways.
Investment guru action
If Warren Buffet sells, so does many others. What Buffet and many other investment gurus (or hedge fund traders do) is monitored closely by other traders. When Buffet or some other guru sells, the price of a given stock may fall far.