Anyone who’s trying to build their savings probably has stocks in their portfolio or has had them in the past. It’s a great place to start learning about investing. But Wall Street newbies should know one thing about the stock market—it’s never constant. Stock prices fluctuate from day to day, even minute to minute. Consequently, so do the market values of a company’s stock.
Why does this happen? The short answer is due to changes in the supply and demand for the stock. 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 reverse is true—more sellers than buyers—the price drops.
What makes people want to buy or sell a stock? Of course, there's no one answer to this question. Stock fluctuations can be caused by any number of factors. To make it easier for beginners, Mountain America Credit Union has a list of things that may affect a stock’s price.
Here are some reasons a stock may go down:
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Earnings are dropping
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Sales are slipping
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A top executive leaves the company
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A well-known investor sells their shares of the company
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A lawsuit is filed against the company
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A market analyst downgrades their recommendation of the stock
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The company loses a major customer
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Many people sell their shares of the company
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A company factory burns down
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Other stocks in the same industry go down
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Another company introduces a better product
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There's a supply shortage and the company can't meet demands
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Scientists discover that the product isn't safe
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A new law impacting sales or profits is introduced
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Negative rumors begin to circulate
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Local acts of terror cause uneasiness
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Concerns over inflation or deflation
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Fluctuating interest rates
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Technological changes
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Natural disasters
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Extreme weather fluctuations
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Negative company reviews on social media
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Directional uncertainty because of a political election
Here are some reasons a stock may go up:
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Increases in earnings and sales
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The company is under promising new management
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An exciting product or service is introduced
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The company lands a big contract
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There's a great review of the company, or new product, in the press or social media
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Scientists discover the product is good for something else
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A well-known investor is buying shares
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Many people are buying shares
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An analyst upgrades their recommendation for the company
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Other stocks in the same industry increase
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A competitor closes shop
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The company wins a lawsuit
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The company expands globally
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The industry is hot
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The company's product is in high, seasonal demand
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Positive rumors or speculation
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Optimistic market conditions
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A fantastic marketing campaign
This is just a small sampling of factors that can make a company's stock go up or down. What's important to remember, though, is that investing will never be a smooth ride—fluctuations are a normal part of the market. Be prepared when it happens, unless conditions in the market are extreme, you simply need to hold on and wait for things to change course.
Growing your wealth is probably at the top of your list of to-dos. If you’re interested in the stock market but need a trusted advisor, Mountain America has plenty of professionals available to help. Make an appointment today and get started making your plan!