- Weak (Smaller) Guidance: Company guidance is lower than what analysts expect, which typically makes the stock price fall.
- Same Guidance (Rare): Company guidance is equal to what analysts expect. ...
- Strong (Higher) Guidance: Company guidance is better than what analysts expected, which typically drives up the stock price.
What to do if your stocks are all falling?
· The stock price decreases when the number of people who are willing to sell the stock (supply) is greater than the number of people who are willing to buy the stock (demand). It’s simple to say that the price fluctuations are due to demand and supply, but, what causes the demand and supply is a fascinating subject to understand.
When to sell a stock?
· Conversely, a loss of confidence can lead investors to sell, pushing down the stock price. Factors that can affect sentiment toward a stock include quarterly earnings reports beating or falling...
What makes stocks rise?
· Essentially, it has disappeared into thin air, reflecting dwindling investor interest and a decline in investor perception of the stock. That's because stock prices are …
What did the market close at Yesterday?
· The forward guidance from management usually has a very big influence on stock prices. It's based on future guidance that investors and analysts project future growth. Any negative guidance event...
It's important for investors to understand what drives stocks and the market up and down
Tim writes about technology and consumer goods stocks for The Motley Fool. He's a value investor at heart, doing his best to avoid hyped-up nonsense. Follow him on Twitter: Follow @TMFBargainBin
What can affect stock prices?
High demand for a stock relative to supply drives the stock price higher, but what causes that high demand in the first place?
The big picture is what matters
Long-term investors, like those of us at The Motley Fool, don't much care about the short-term developments that push stock prices up and down each trading day. When you have many years or even decades to let your money grow, things such as analyst upgrades and earnings beats are irrelevant.
What is noise trader?
The term noise trader is generally used to describe non-professional investors, but it may also include technical analysts. Noise traders do not analyze the fundamentals of a prospective investment, but instead make trades based on news, technical analysis indicators, or trends.
What is the efficient market hypothesis?
The Efficient Market Hypothesis suggests that markets are efficiently priced based heavily on their fundamentals. However, regardless of the fundamentals of a stock, there may be plenty of times when a company meets or even exceeds analysts' expectations, provides solid guidance, and sees the share price fall anyway.
How often do companies report earnings?
Earnings Reports. Publicly-traded companies are required by the Securities and Exchange Commission to publicly report earnings results quarterly, four times a year. 1 While this provides a great deal of transparency it can also lead to a build up of rumors as there is a three-month gap between each release.
What is future guidance?
Future guidance is also a big factor for fundamental valuations. Future guidance provides investors and analysts with management’s insight on the projected future growth as well as any new developments that may affect the fundamentals.
What happens when a stock price falls?
If the stock price falls, the short seller profits by buying the stock at the lower price–closing out the trade. The net difference between the sale and buy prices is settled with the broker. Although short-sellers are profiting from a declining price, they're not taking your money when you lose on a stock sale.
What happens if you buy a stock for $10 and sell it for $5?
If you purchase a stock for $10 and sell it for only $5, you will lose $5 per share. It may feel like that money must go to someone else, but that isn't exactly true. It doesn't go to the person who buys the stock from you.
What is short selling?
Short Selling. There are investors who place trades with a broker to sell a stock at a perceived high price with the expectation that it'll decline. These are called short-selling trades. If the stock price falls, the short seller profits by buying the stock at the lower price–closing out the trade.
What does it mean when a company is in a bull market?
In a bull market, there is an overall positive perception of the market's ability to keep producing and creating.
What is bull market?
In a bull market, there is an overall positive perception of the market's ability to keep producing and creating. Because this perception would not exist were it not for some evidence that something is being or will be created, everyone in a bull market can be making money.
How is explicit value calculated?
Referred to as the accounting value (or sometimes book value ), the explicit value is calculated by adding up all assets and subtracting liabilities. So, this represents the amount of money that would be left over if a company were to sell all of its assets at fair market value and then pay off all of the liabilities, such as bills and debts.
What does it mean to buy the rumor and sell the news?
Second, investors usually believe in the adage “buy the rumor, sell the news,” which means investors buy the stock on rumor or expectations and sell when the actual news comes out, even if the news is good.
What is earnings event?
A company's earnings event is big news for investors. Most companies report their earnings and provide updates to their forward guidance. Article continues below advertisement. During the earnings call, management usually provides the outlook for the company and the industry.
What does it mean when a company beats expectations?
Any earnings that beat market expectations are seen as good earnings. If a company beats analysts’ expectations, it's seen as a positive sign for the company's overall prospects. In contrast, an earnings miss can cause the stock to fall. However, it doesn’t always work that linearly. There could be many reasons why stock prices fall ...
What is forward guidance?
The forward guidance from management usually has a very big influence on stock prices. It's based on future guidance that investors and analysts project future growth. Any negative guidance event could lead to downward revisions to revenues, earnings, or cash flows, which will decrease the value of the stock as well.
Valuing A Stock
Earnings Reports
- Publicly-traded companies are required by the Securities and Exchange Commission to publicly report earnings results quarterly, four times a year.1 While this provides a great deal of transparency it can also lead to a build up of rumors as there is a three-month gap between each release. Moreover, any substantial discrepancies from expectations or any drastically surprising …
Supply, Demand, and Trading
- The Efficient Market Hypothesis suggests that markets are efficiently priced based heavily on their fundamentals. However, regardless of the fundamentals of a stock, there may be plenty of times when a company meets or even exceeds analysts' expectations, provides solid guidance, and sees the share price fall anyway. When this happens, supply, demand, and trading factors m…
Economic and Sector Influences
- Lastly, external influences can also be a big factor. These influences can be broadly divided into either macro or micro. Macroeconomic factors like rising interest rates or a market shift to lower risk investments could potentially cause stocks to fall across the board and specifically result in stock losses for a single stock despite good news. S...
The Bottom Line
- There are many possible explanations for a stock's value declining despite good news being released. Oftentimes, investors can discern stock moves based on both the science and art of its valuation. As such, study and awareness of all the possible factors can be important for gauging any potential moves or volatility following good news. Broadly though, one of the most importan…