Factors That Influence Stock Prices

Stock prices are based on the market value of a company, but there are many factors that influence the pricing of stocks. International economic news, economic data, futures or commodity trading data, analyst downgrades, analyst upgrades, changes in company management, new debt or equity offerings, acquisitions, mergers and myriad other events all play a role in stock pricing. Somehow, the market assimilates all this data and spits out a price. This is referred to as market efficiency.

Among one of the largest influences on stock price is the quarterly earnings release. This is because a strong earnings report will generally point to growing sales and profit margins as the reason for the increase, which increases the price of the stock. If the earnings report is weak and points to lower-than-expected inventory turnover. it could be a sign of decreased demand, which will push the stock down. The same logic applies to under-perform and outperform stock reports published by equity analysts.

With the right media coverage, an announcement of a new product, service or promotion can also push a stock price up. New products can boost sales and increase stock prices; however, if sales lag, it can cause a decrease in stock price. A new service or promotion also suggests an investment in marketing, which points to increased sales in the coming months.

Internal news that affects operations, such as management changes, new contracts, negotiated supplier deals, debt offerings and even software to help streamline operations, can influence stock price. Dividend announcements tend to have no affect on the movement of stock price. However, on the ex-dividend date the stock, will generally go down by the amount of the dividend. The ex-dividend date is the date the seller of stock no longer has access to the dividend.

In addition to company-specific data, sometimes economic data will move the entire market, which will have an indirect affect on the price of all stocks. For example, if jobless claims fall, it is generally a sign of growth and expansion in the economy. This will cause an upward market rally and increase the price of the majority of stocks. Macro changes in interest rate policy or futures data can also influence stock prices.