Top Determinants of Stocks Movements You Need to Know - Introduction:
Ever day, trillions of dollars exchange hands in the stock market worldwide. While most countries have an established stock market, those of developed countries like the United States are the largest and the most active. For example, the companies listed in the New York Stocks Exchange (NYSE) have a market value of more than $21 trillion which is more than the economies of most countries combined. In this article, I look at the key factors that move stocks up and down each day.
Investors use the news to know how the companies are doing. Each day, news headlines about different companies come out. They are covered in financial press like CNBC and Wall Street Journal. The news can either be positive or negative. For example, when news crosses that a company is being acquired, investors tend to move into the company being acquired. This is because of the premium that the acquirer will have to pay. If on the other hand news crosses that a company has been hacked, investors tend to exit as such a situation can be expensive.
Therefore, as a trader, you need to have the best news sources. You need to have access to platforms like Bloomberg and Reuters which are usually among the first to break authentic news.
Every day, different government and private agencies release their economic data. The data is meant to help investors and policy makers understand the status of the economy. For example, the inflation data shows the federal reserve whether the inflation is growing or slowing. This influences their decision in interest rates. Positive economic data is a good indication that the economy s growing which is very important for companies. Therefore, you should pay close to the economic data that is released every day.
Investors want to invest in companies that are growing. They want to invest in companies that will reward them with dividends, capital appreciation, and share buybacks. A company that is slowing in revenues and growth is not desirable. Each quarter, companies release their results and make presentation to their shareholders about the status of their companies. Investors tend to invest in companies that record improved results and better projections. Therefore, as a trader, you should pay close attention to the earnings season to find companies that are growing to invest in.
Two weeks ago, the stock price of General Electric started to drop as the company reduced its dividend and earnings projections. Many analysts forecasted a situation where the company’s stock price would continue to drop. But, news went out that insiders of the company were buying more stock. The downward trajectory stopped.
Investors want to invest in companies which managers have invested in. They hate investing in companies which the directors and managers don’t have a stake. Therefore, when investors buy more shares, it gives the investors confidence that they are in good company. As a trader, you should pay close attention to what insiders are doing.
Investors tend to be in the company of other large investors. Some investors have built their career on buying companies and improving them. Therefore, when they buy stocks in a company, investors tend to follow them. Some of these investors are Warren Buffet and Nelson Peltz who is the largest investor in P&G and David Einhorn who has invested in companies like General Motors and Hewlett Packard Enterprise among others.
Another top determinant of the stock performance is the hype. Some companies that have performed badly have seen their stock price go up because of the hype. For example, Amazon, Tesla, and NVIDIA have seen their stock go up even though they don’t perform very well. Therefore, as a trader, you should pay close attention to companies that generate so much hype.