Why do stock prices move?

What dictates whether something has value? In the simplest explanation, supply and demand does.

In times of crisis, food prices and other daily necessities skyrocket. This is because as more people have a demand for these products, the stores might not necessarily have enough supply for everyone. Therefore, they will raise the prices for the products as people will still purchase the goods due to the high demand. Similarly, if a product isn't selling well, the store might lower the price to encourage people to buy it. This is the basic idea of supply and demand.

A stock's price is not based only on how a company is performing today. Investors are constantly trying to predict how the company will perform in the future.

Suppose a company earns record profits, but investors expected even higher profits. Its stock price could still fall because the results were worse than expected.

On the other hand, a company could be losing money but have its stock rise if investors believe its future is improving.

This is one of the most important ideas in investing: stock prices reflect expectations about the future.

Public companies regularly report their financial results. If a company grows faster than expected, investors may become more willing to own its stock. If growth slows or the company starts losing customers, investors may become less willing to own it.

Over long periods of time, a company's ability to grow its business and profits usually becomes a major factor in determining its stock price.

Stock prices can also react quickly to new information. A new product, lawsuit, government regulation, CEO resignation, major contract, or competitor announcement can all affect how investors view a company.

For example, if a pharmaceutical company receives approval for an important new drug, investors might expect future sales to increase. That could cause demand for the stock to rise.

The key idea is that news affects stock prices when it changes what investors expect to happen in the future.