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. How does the law of supply and demand affect the stock market?

    Find out how the law of supply and demand affects the stock market, and how it determines the prices of individual stocks ... Read Answer >>
  3. What is "hammering"?

    "Hammering" is a situation where large sale orders are placed against a particular stock because investors believe that the ... Read Answer >>
  4. 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 >>
  5. Do stocks that trade with a large daily volume generally have less volatility?

    Stock volatility refers to a drastic decrease or increase in value experienced by a given stock within a given period. There ... Read Answer >>
  6. Can a stock lose all its value? How would this affect a long or short position?

    The answer to the first part of this question is pretty straightforward: yes, stocks are able to lose all their value in ... Read Answer >>
Related Articles
  1. Investing

    Where's The Market Headed Now?

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

    How The Stock Market Works

    When you buy a stock, you buy a piece of a company.
  3. Insights

    4 Factors That Shape Market Trends

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

    Market News That Seems Promising - But Isn't

    Not all good news is created equal. Find out how some positive stock market news can actually be bad news for investors.
  5. Financial Advisor

    Why You Should Never Short a Stock

    Short selling a stock means you are betting on the stock decreasing in price. Before taking on this investment, you should fully understand the risks
  6. Trading

    Eight Items That Impact Daily Trades

    Find out which factors can help you squeeze more profit out of each position.
  7. Insights

    3 Ways To Tell If Your Stock Has Bottomed

    No one can call stock bottoms with absolute certainty, but there are some common trends that appear when stocks are about to hit bottom.
  8. Investing

    Battered Stocks That Bounce Back

    Companies with falling revenues can be profitable, but choose them with care.
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. Informationally Efficient Market

    A theory, which moves beyond the definition of the efficient ...
  4. Supply

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

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

    Projections, expectations and other news items that are already ...
Hot Definitions
  1. Protectionism

    Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local ...
  2. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  3. Demonetization

    Demonetization is the act of stripping a currency unit of its status as legal tender and is necessary whenever there is a ...
  4. Investment

    An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic ...
  5. Redlining

    The unethical practice whereby financial institutions make it extremely difficult or impossible for residents of poor inner-city ...
  6. Nonfarm Payroll

    A statistic researched, recorded and reported by the U.S. Bureau of Labor Statistics intended to represent the total number ...
Trading Center