7 Key Factors That Influence Stock Prices

The marketplace is where stock prices shift up and down, but it can be tricky to determine what items make the stock prices rise or fall. While there isn’t a clear standard as to what causes price changes, there are seven key factors we consider as some of the most influential in what you will pay to attain a stock.  

If you’re looking to better understand what factors influence stock prices, you’re in the right place. A more thorough understanding of what makes these numbers go up and down will help you better participate in the market. Keep reading to learn more about seven of the most critical items that impact stock prices.

1. Trends

One of the most influential items in stock prices is trends. Sometimes, even the shortest trends can make the price point of a stock rise or fall. A trend can cause prices to move in the opposite direction of the trend or in the same direction, making this an unpredictable indicator.

Some examples of trends include social media's rising popularity or when streaming services, like Netflix, started to become popular. Both of these led to initial rises and later drops as more competitors entered the market.  

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2. News

Again, the news is hard to put into a numerical form to determine impact, but it does affect how the markets move. Whether it’s something that happens around the world or within a company, the sentiment toward the market can change and impact how much you find in the value of a particular stock.

Common influences on stock prices about the news include the following:

●      Release of a company’s earnings reports

●      Negotiations between various companies on the market

●      Expectations of the profitability of a company

●      Breakthroughs in politics publicized on the internet or television

●      News of coming regulations in certain industries

These can all impact the rise or fall of a stock price. It’s tricky to determine how the news will impact the market. Most of the time, businesses that make money will have a higher stock price - but that’s not always the case. No matter what an investor thinks, there is no guarantee a particular company will provide high earnings for those who invest in them.

A prime example of this is the AMC rapid rise and subsequent crash during the COVID pandemic. The company wasn’t making any money due to COVID restrictions, yet people rushed to buy the stock due to a Reddit trend, causing the prices to skyrocket suddenly.

3. Market Sentiment

Another item that influences stock prices is market sentiment. The market sentiment is basically the mindset of those who participate in the market, or psychology. It’s a very confusing factor that has a large influence on stock prices and can be biased and even subjective in some cases.

It’s possible to make vast predictions for the market. However, there can be one piece of market sentiment that can artificially influence the cost - which is frustrating. Although there have been studies on market sentiment it is still widely misunderstood and difficult to predict.  

4. Liquidity

Another interesting factor in any stock price experience is liquidity, which often is an underappreciated selection. This speaks to the interest a specific stock brings in from investors on the market. Something with high liquidity, like Target, is more vulnerable to shifting situations like the news and earnings reports.

If something has a low level of liquidity, it’s less likely to shift as time goes on, and there are other influences from the outside. A stock should have high liquidity because it means many people are investing in it. Something with lower liquidity has less interest and isn’t very visible.

5. Inflation Rate

Inflation is another significant factor in the rising or lowering of stock price points, which can offer a significant shift in the stock’s value. Typically, low inflation levels can create high multiples, and high levels of inflation can lead to low multiples. These metrics are valuable to have on hand when considering a stock investment.

Deflation is on the other side of the coin when looking at inflation rates. When there is deflation of the price point of a stock, it means there is a lower amount of pricing ability for the companies involved.

6. Fundamental Factors

There are also fundamental factors to consider when looking at some of the most influential items on the stocks. If the market is in an efficient position, there should be only two factors at play - which is rarely the case, hence the other mentioned factors. Fundamental factors include an earnings base and a valuation multiple.

An earnings base is a way to measure the earning power of a particular stock. This unit and other measurements help determine what each shareholder receives. A valuation multiple is expectations about what is to come in the future. It’s based on the anticipated growth for the earnings base and the discount rate in the current value of future earnings.

7. Demographics

The final consideration when looking at the influence of stock prices is the demographics associated with a particular stock. Two particular demographics tend to have a massive impact on stock prices - older and middle-aged investors as they have lots of money to invest—mostly from retirement accounts.

There are several predictions about what happens to the market when a large number of one demographic of investors are involved in a particular stock. For example, a stock like Apple, when it first launched, may not have been appealing to the majority of the investors due to them not understanding the technology, but young investors may have seen the potential and invested differently due to their demographic, which led to an underrated stock and a good buy for all involved.

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Final Thoughts

Although many more factors can impact stock prices, these seven are some of the most influential. We think the trends, news, market sentiment, liquidity, inflation rate, fundamental factors, and demographics are some of the items that will really change the price point.

We hope this information is beneficial, whether you’re already involved in the stock market or want to take a new route and attempt to try it out for the first time. Ultimately, many different things can change the price point for particular stocks.

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