what affects the price of a stock?
The price of an stocks can vary for several reasons and at different time scales:
Scale of months or years
At scales of years, aside from how good or bad a company is, there is a general trend for stocks to move at the speed of the economy.
Robust companies should expect to grow at least to the same speed of economic grow of a country.
If a country grows at 2% per year, it is expected that stocks of robust companies will grow to at least the same rate.
The reason for this relationship is that the central bank regulates interests rates as to ensure an optimun growth.
If the economy is tanking, the bank/federal reserve reduces interest rates (meaning people can loan money from banks at lower interest). That allows company to invest, and grow.
If the economy is growing too fast, the federal reserve increases interests rates.
There is an optimum balance here, as increasing or decreasing interest affects inflation, or buying less for the same amount of money (things become more expensive).
The image below show the stock price of Apple over 5 years. Note how this robust company has positive growth, generally reflecting the overall growth of the economy.
Figure 1.1: Apple long term grow
Short term
Dramatic changes in the price of an stock can happen from day to nigh, or rather from one minute to the next, depending on given developments of the company. Here is why it is important to keep up with the news.
As an example, in June 21 2021, the Chinese government once again made headlines by claiming that no one in China can trade with Bitcoin. As a result, the price of Bitcoin drop from $31,298 at 1:59 am to $29,470 by 2:44 am.
Figure 1.2: Bitcoin crash
Elon Musk is another classic example, in which simple Twitt can affect considerably the price of stocks.
Other factors that can cause dramatic changes in stock price from one moment to the next one include: Expected reports of economic performance of the given company, purchase of new machines, granting of new patents, lawsuits, changes in CEOs, selling of the company, the climate, terrorist attacks,etc.
Below is an example of variations in Bitcoin prices associated with major news…
Figure 1.3: Bitcoin crash
Intra-day variation
Over the lapse of a day thousands of people trading look at charts of stocks going up and down in price.
The observation of those chart make these people buy or sell the stocks depending if they see a chance to gain, or an opportunity to avoid losing, money.
Imagine you see a stock going up in price, while available shares (so call volume) increase. This probably indicates strong momentum, lots of interest, signaling an opportunity to get on the wave and buy, hoping to sell at a higher price.
However, as the price starts to go up, some people may start to capitalize by selling their stocks, and this may slow down the price later on.
It follows that many traders may get scared that there would be a downturn, forcing them to sell, causing the price to go down.
Figure 1.4: Bitcoin crash
As noted, the change of the stock price over this small scales, can be influenced by very predictable human behavior.