What affects the share price?
What are the factors that influence stock prices. The BG SAXO report
Shares are freely bought and sold on the open market. As such, a wide range of factors influence stock prices. It is important to stay informed about all of these factors so that you can put together a viable investment strategy.
Let's examine them.
Business performance
A company's performance has a direct and profound impact on its share price. If a company publishes a positive earnings report or an optimistic outlook for the coming year, its share price could rise. The reverse is also true. For example, if Microsoft reports a lower-than-expected earnings outlook for the third quarter of 2022, it is possible that its share price will decline once investors learn of this news. It is worth noting that “good” performance generally relates to expectations rather than company profits.
That's why a healthy earnings report from Microsoft could still cause the share price to drop if those profits are lower than originally expected.
Industry performance
It is not only the performance of the individual company that affects the share price, but also the entire sector of which it is a part. For example, the stock price of an oil company like Exxon Mobil will decline if there are broader problems in the oil industry, such as shortages of demand or supply bottlenecks.
Market sentiment
It is important to remember that often the price of a share will be completely influenced by "how people feel". This is what is generally meant by market sentiment.
If the general sentiment is that a particular company or sector will do well in the future, more people will buy shares in that sector. As a result, the share price could rise, becoming something of a self-fulfilling prophecy. We've seen this happen with green transition companies like Tesla, which saw its share price rise 900% between late 2019 and late 2020, as optimism about the future of low-emission vehicles increased in the whole market.
Economic indicators
The broader economy of a nation or the world will always play a role in a company's stock price.
This is why, for example, during the Great Recession of 2008, stock indices around the world fell massively, with many companies having their stock prices wiped out. On the contrary, in good times, stock prices tend to perform well overall.
Of course, this is not always the case and stock prices can rise despite the broader economic gloom. We have seen this throughout 2020, when equity indices rose to near record levels despite the historic economic disruption.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/cosa-influenza-prezzo-azioni/ on Sun, 21 Aug 2022 06:05:23 +0000.