what are the factors that effect stock prices ?

Answer 1

In theory the price of a stock should equal the discounted value of its future cash flows. In plain English this means that a stock should be worth an amount equal to all the dividends it will ever pay out, adjusted for the fact that a dollar earned ten years from now is less valuable to an investor than a dollar earned today (because you can invest a dollar earned today so that it will be worth more than a dollar ten years from now.)

This means that stock prices change when the amount of money the underlying company is likely to earn changes. If for example a small biotech stock announces that it has cleared a blockbuster drug through clinical trials it can reasonably be inferred that the company will make a lot more money in the coming years, and the price of the stock will go up to reflect that. On the other hand if the same company announces the drug doesn't work this means that an important potential revenue stream for the company will not come into being and the stock will likely go down.

Stock prices also simply fluctuate.

Answer 2

There are a few factors that influence stock prices. The most important of them is a company's earnings.

As a shareholder in a company, you are entitled to a stake of all that company's future profits until the day you decide to sell your shares. A shareholder's share of a company's profit is the dividend received. The dividend is basically some percentage of a company's earnings that the company decides to pay its shareholders.

A shareholder at any given point in time, as said earlier, is entitled to a piece of all future dividends paid by the company. The stock price can therefore be thought of as the present value of all future dividends paid by the company. Fundamental analysts often use whats called a dividend discount model to calculate what they think is the right price of a stock.

In the real world, consider that you owned a profitable pizzeria and someone asked to buy it from you. Your pizzeria made you $100,000 last year. How much would you sell it for? Surely, you wouldnt sell it for $100,000 because that's one year's profit. Suppose you believed that you could make $110,000 each of the next 3 years and $125,000 every year after. Without going into the math, you can see that this pizzeria is worth a lot more than $100,000. You wouldnt sell it for less than what the present value of those projected profits were (plus your other costs).

Now not all stocks have earnings or even pay dividends so how do earnings affect their price? The market attempts to discount what the future earnings and the future dividend will be. Because these companies are still growing and not producing steady earnings, there is a lot more "guess work" and speculation in companies like this. Their stock prices tend to be more volatile than an established company's.

In short, while there is all sorts of info that gets bombarded into the market and causes stock prices to move (seasonality, state of the economy, inflation, interest rates, etc.) the one thing that really matters is earnings. Earnings. Earnings. Earnings. When you think about it, all the other inputs into the market really are just influences on earnings. Today, people think the subprime market might derail the economy so they are selling some stocks. Basically, that's just another way of saying that people think a company's earnings are going to drop. (thats what the economy slowing down does!). It all comes back to earnings.

If you are an active investor (as opposed to an indexer), the question you need to ask before investing in a stock, any stock is simple: what is the outlook for earnings for this company. When a company's earnings increase, its stock price will go up. When its earnings decrease, the stock price will go down. The relationship always holds.

Answer 3

Many other factors have an effect on the stock market- for example, the state of the economy. If there is more money floating around, there is more flowing into companies making their prices rise. Yet another factor is time of year, and publicity. Many stocks are seasonal, meaning they do well during certain parts of the year, and worse during others. An example is an ice company, the ones that package ice that you buy at the supermarket. During the summer, with picnics, and sweltering heat, their product sells well, and thus their stock price goes up; But during the winter, when people are not as interested in a picnic with 20 below temperatures, their price goes down. Publicity has an effect on stock prices. If an article comes out saying that company ABC, has just invented this new type of ice that will revolutionize the industry, odds are their price will increase. Conversely, if an article comes out saying that company ABC's president is a crook, and stole the pension funds, it is a good bet that the price will go down.

Answer 4

THE PRICE OF A STOCK IS DETERMINED ONLY BY THE WHAT THE LAST BUYER PAID, more sellers than buyers the price goes down,more buyers than sellers it goes up.

Answer 5

Shareholders selling their stock!
Bad Marketing
Money was invested poorly to expand, etc.
Poor accounting

Answer 6

News affects it the most and earnings reports. People buying and selling in large quantitys.