A:

Stock prices move up and down every minute due to fluctuations in supply and demand. If more people want to buy a particular stock, its market price will increase. Conversely, if more people want to sell a stock, its price will fall. This relationship between supply and demand is tied into the type of news reports that are issued at any particular moment.

Negative news will normally cause individuals to sell stocks. Bad earnings reports, poor corporate governance, economic and political uncertainty, and unexpected, unfortunate occurrences will translate to selling pressure and a decrease in stock price.

Positive news will normally cause individuals to buy stocks. Good earnings reports, increased corporate governance, new products and acquisitions, as well as positive overall economic and political indicators, translate into buying pressure and an increase in stock price.

But it's difficult, if not impossible, to capitalize on news. The impact of new information on a stock depends on how unexpected the news is. This is because the market is always building future expectations into prices. For example, if a company comes out with better-than-expected profits, the stock's price will likely jump. But, if that same profit was expected by a majority of investors, the stock's price will likely remain the same as the profit would have already been factored into the stock price. Thus, it's unexpected news - and not just any news - that helps drive prices.

For further reading, see What Causes Prices to Change? and Trading On News Releases.

RELATED FAQS
  1. Why don't stocks begin trading at the previous day's closing price?

    Most stock exchanges work according to the forces of supply and demand, which determine the prices at which stocks are bought ... Read Answer >>
  2. What causes a significant move in the stock market?

    There is a nearly infinite number of factors that can cause the stock market to move significantly in one direction or another. ... Read Answer >>
  3. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
  4. What's the difference between regular supply and demand and aggregate supply and ...

    Understand how businesses use supply and demand and aggregate supply and demand to forecast economic activity. Learn about ... Read Answer >>
  5. What is "hammering"?

    "Hammering" is a situation where large sale orders are placed against a particular stock because investors believe that the ... Read Answer >>
Related Articles
  1. Insights

    The Top Sites for the Latest Stock Market News

    News drives the markets for short term price movements. Which websites offer timely, accurate and reliable access to news for trading and investments?
  2. Investing

    Can Good News Be A Signal To Sell?

    Sometimes positive announcements can mean bad news for a stock. Find out why.
  3. Investing

    Where's The Market Headed Now?

    Whether up, down or sideways, learn about some of the factors that drive stock market moves.
  4. Insights

    4 Factors That Shape Market Trends

    Trends allow traders and investors to capture profits. Find out what's behind them.
  5. Investing

    Battered Stocks That Bounce Back

    Companies with falling revenues can be profitable, but choose them with care.
  6. Tech

    Top U.S Forex News Sites

    Breaking news moves forex markets. Here are the top U.S. sites for tracking forex news.
  7. Trading

    Eight Items That Impact Daily Trades

    Find out which factors can help you squeeze more profit out of each position.
  8. Trading

    How To Trade The News

    Regardless of your investing horizon, learning to trade the news is an essential skill for astute portfolio management and long-term performance.
RELATED TERMS
  1. News Trader

    A trader or investor who makes trading or investing decisions ...
  2. Law Of Supply And Demand

    A theory explaining the interaction between the supply of a resource ...
  3. Supply

    A fundamental economic concept that describes the total amount ...
  4. Material News

    News released by a company that might affect the value of its ...
  5. Baked In The Cake

    Projections, expectations and other news items that are already ...
  6. Informationally Efficient Market

    A theory, which moves beyond the definition of the efficient ...
Hot Definitions
  1. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
  2. Taxable Income

    Taxable income is described as gross income or adjusted gross income minus any deductions, exemptions or other adjustments ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly AIMR) that measures the competence and integrity of financial ...
  4. Initial Coin Offering (ICO)

    An Initial Coin Offering (ICO) is an unregulated means by which funds are raised for a new cryptocurrency venture.
  5. The Bernie Madoff Story

    Bernie Madoff ran a multibillion-dollar Ponzi scheme that is considered the largest financial fraud of all time.
  6. Pyramid Scheme

    An illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide the funding, ...
Trading Center