- Many forces act to drive stock price movements over the short and long term.
- Ultimately, in the long run, the total returns from your stock portfolio are driven by the performance of the underlying businesses and the valuations you bought the stocks at.
- So, focus on business fundamentals and make sure your chosen stocks have stable and growing profits and reasonable debt levels.
Five things that can drive powerful stock movements are news, sentiment, profits, valuation, and debt levels.
In the short run, the stock price can be driven by news.
M&A activities are a common example. Depending on how positive (or not) the market feels about the stocks related to the M&A activity, the stocks may fall or rise meaningfully on the day of the news announcement.
As a side note, many acquisitions, especially large ones, require integrations of complicated businesses and cultures, and more often than not lead to underperforming stock prices, at least over the next year or two after the purchase…
Other common examples are earnings release or guidance revision. Depending on the results of a company’s earnings release that may include changes in the management’s outlook for the company, the underlying stock could go up or down.
News outside of the company can also affect stock prices…
It’s safer to invest in businesses that have stable and predictable earnings or cash flow. Most stocks have done well because we’ve been in a 10-year bull market…
Unfortunately, we have maxed the word limit for this excerpt. But you can read the Seeking Alpha article (with examples, images, and graphs) here: 5 Things That Can Drive Powerful Stock Movements
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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