Why do stocks go up and down?

Cheat Sheet:

  • Supply and demand.
  • Prices go up when there are more buyers than sellers.
  • Prices go down when there are more sellers than buyers.

Very simply, stock prices go up and down due to supply and demand. But what exactly causes changes in supply and demand?  Here are a few of the things that may lead to a stock going up or down:

• Earnings beat expectations
• Other stocks are going up
• New CEO brought in
• 5-star product review
• Killer new product unveiled
• Analyst recommends to buy
• Head of company leaves
• Profits are down
• Competitor introduces better product
• Celebrity stock guru says “sell”
• Major political or economic news
• Rumors about the company

For example, if earnings beat expectations, investors tend to be more interested in owning the stock than dumping it.  Demand exceeds supply, pushing the stock price up. 

Even so, it is very hard to predict whether a stock is going to go up or down in reaction to various events.  That’s why the stock market is best for investors who are willing to ride out the storms, rather than panic whenever their stocks tumble.

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