Factors Affecting Stock Prices

There are a myriad of factors – from economic to company-specific factors – that determine how investors perceive the future prospects of a company to be, and that in turn affects the price that they are willing to pay for the stock. We examine some of these factors in this article.

iFAST Research Team
iFAST Research Team06 Dec 2016 0 Views
Factors Affecting Stock Prices

When an investor is willing to buy a stock at a price that another investor is willing to sell at, a transaction takes place, and the price at which the trade is being done becomes the new market price, which is updated each time the stock changes hands. Thus, at the most fundamental level, stock prices are determined by the forces of supply and demand. If there are more buyers than sellers in the market for a particular stock, its stock price will tend to rise. Conversely, if there are more sellers than buyers in the market for a particular stock, its stock price will tend to fall. There are a myriad of factors – from economic to company-specific factors – that determine how investors perceive the future prospects of a company to be, and that in turn affects the price that they are willing to pay for the stock. Some of these factors include:

1. State Of The Economy

Stock prices can be influenced by the state of the economy. When the economy is growing at a healthy rate and macroeconomic conditions are generally favourable, most companies should experience higher profitability. The higher level of profits enjoyed by companies makes their stocks more attractive to investors, as they can potentially pay out more dividends to shareholders. On the other hand, a slowing economy is expected to weigh on the earnings, as companies grapple with limited expansion opportunities and challenging operating conditions. In times of economic recession and uncertainty, stock prices generally fall as companies tend to slash their dividend pay-outs and investors may also avoid investing in stocks altogether, preferring to put their money in safer investment instruments such as bonds.

2. Industry Conditions

Besides the health of the broader economy, industry-specific factors and trends can also have an impact on the stock prices of companies in the same industry. More often than not, the stock prices of companies in the same industry tend to move in tandem with one another, as industry conditions, favourable or not, usually affect them in the same way. For instance, the entry of a new competitor can potentially have a negative impact on the stock prices of existing players in the industry, as their market shares and profitability are likely to be affected. Similarly, the introduction of government regulations in a specific industry will also have a negative impact on the share prices of companies in that industry.

3. Company Earnings

The earnings of a company is arguably one of most important factor that affects its stock price. For a company to remain as a going concern in the foreseeable future, it needs to be able to generate profits or it risks going out of business. Market participants make sure of various valuation models to estimate the intrinsic value of a company's stock, and these models are usually driven by information such as forecasted earnings, expected cash flows and the level of interest rates in the economy. As such, if a company is performing well, and is expected to sustain its good financial performance in the future, its stock price should benefit as market participants are likely to assign a higher intrinsic value to the stock. In the short-term, if a company's financial results exceed market expectations, its share price is likely to rise. However, if earnings disappoint (worse than expected), then its share price is likely to fall.

 

The Research Team is part of iFAST Financial Pte Ltd.

All materials and contents found in this site are strictly for general circulation and informational purposes only and should not be considered as an offer, or solicitation, to deal in any of the funds or products found/identified in this site. While iFAST Financial Pte Ltd ("IFPL") has tried to provide accurate and timely information, there may be inadvertent delays, omissions, technical or factual inaccuracies and typographical errors. Any opinion or estimate contained in this report is made on a general basis and neither IFPL nor any of its servants or agents have given any consideration to nor have they or any of them made any investigation of the investment objective, financial situation or particular need of any user or reader, any specific person or group of persons. You should consider carefully if the products you are going to purchase are suitable for your investment objective, investment experience, risk tolerance and other personal circumstances. If you are uncertain about the suitability of the investment product, please seek advice from a financial adviser, before making a decision to purchase the investment product. Past performance is not indicative of future performance. The value of the investment products and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. In respect of any matters arising from, or in connection with the said research analyses or research reports, recipients of the report are to contact IFPL at 10 Collyer Quay, #26-01 Ocean Financial Centre Building, Singapore 049315, or by telephone at +65 6557 2853. Where the report contains research analyses or research reports from a foreign research house and if the recipient of such research analyses or research reports is not an accredited investor, expert investor, institutional investor or an ex-accredited investor, IFPL accepts legal responsibility for the contents of such analyses or reports to such persons only to the extent as required by law. Please note that only certain security(ies) herein are available to all investors, while the rest are only available for certain persons to invest in, such as Accredited Investors (as defined in the Securities and Futures Act) or one who invests at least S$200,000 (or its equivalent currency) per transaction. To qualify as an Accredited Investor, one needs to submit a declaration form and certain relevant supporting documents, according to iFAST’s prevailing policies and procedures.

Please read our full disclaimers on the website at ( https://secure.fundsupermart.com/fsmone/policies/328125/investment-account-terms-&-conditions).

iFAST Financial Pte Ltd (IFPL) (registered address: 10 Collyer Quay #26-01 Ocean Financial Centre Singapore 049315, Telephone: 6557 2000) holds the Financial Advisers Licence issued by the Monetary Authority of Singapore ('MAS') to conduct regulated activities of advising on securities, marketing of collective investment schemes and arranging of any contract of insurance in respect of life policies, other than a contract of reinsurance and the Capital Markets Services Licence issued by the MAS to conduct regulated activities of dealing in securities and providing custodial services for securities. While IFPL has made every effort to ensure the independence of the report's contents, IFPL's nature of business is such that IFPL and its connected and associated entities together with their respective directors, officers and staff may be involved in providing dealing or investment-related services in the abovementioned securities, and have taken or may take positions in the securities mentioned in this report, and may also act as the principal for any buy or sell trades.

Stay updated with us on Telegram

Like us on Facebook

Follow us on Instagram

Watch our videos on YouTube