From when markets open for trading down to the close of the market, the one constant thing is — price fluctuation.
Anything from a breakfast news story to a shareholder meeting can affect a stock's price, but most times, it has to do with the interplay between supply and demand.
These factors can be summed up as 'noise' contributing to daily price volatility. But one-factor influences share prices more than any other — Profit.
Though many try, nobody can predict every element in stock price fluctuations. But you can check out the best stock trading app in Australia for help to get you a little closer to viewing the most generally-agreed factors that affect stock prices.
Here’s a look, in some detail, at factors that affect stock prices.
Fundamental Factors
The two most fundamental factors can be traced to profitability and the valuation ratio. Profit is the ultimate result of many other revenue potential management competencies like governance, skills, and cost management.
Although slightly more speculative, the valuation ratio is the relationship between a specific financial metric (like earnings, revenue, cash flows) and the entity's market value.
The most famous metric is the price-to-earnings or P/E ratio. A P/E ratio is a company's share price to its earnings per share. A good price-to-earnings ratio means that more people want to own that stock leading to an increase in the value and price of the stock.
Technical Factors
Technical factors change the supply and demand of the stock that won't fundamentally alter the prospects of generating cash.
Technical factors can also be specific days of the week or a time of the day a trade takes place compared to other days and times. Also, the price movement of one stock compared to the movement of another stock in the same industry or business sector can affect the stock price.
These technical factors may be meaningful since they give insight into the supply and demand dynamics of the stock.
News
Whenever a company's stock price goes up or down after an earnings call, it's because of the news.
What helps is to decipher news that can impact fundamental factors versus 'noise' that can change the short term demand and supply of stock.
News that affects the probability of a company's ability to generate future cash flows can significantly impact prices, especially if the impact is substantially different from current expectations.
Market Sentiment
Market sentiment, also investor sentiment, is the investor outlook regarding a particular stock's performance in the market. Sentiment drives demand, which also influences supply. Psychology is essential for market dynamics.
It's used to describe the market's expectations regarding portions of metrics of the financial market. Market sentiment matters profoundly because supply and demand forces are critical for the medium-term movement of asset prices at the end of the day.
Last Word
Conclusively, while using your instincts and intuition when investing, it's easy to let your emotions get the best of you. Ultimately, although the stock market may have its ups and downs in the short term, ensure that you're investing smartly with strategies that meet your financial goals and keep your focus on your long-term goals to avoid taking hasty decisions from short-term panic or the fear of missing out.