Submitted by nsscadmin on
One of our readers is a keen follower of the stock market. They aren’t heavily invested in stocks, but they enjoy monitoring the price of some local companies and some well-known blue chips. After observing some wide fluctuations and volatility over the years they want to know what factors affect the value of a stock?
There’s no one answer to this question which is what makes it so difficult to predict what certain stocks and what the markets will do on a daily, weekly or yearly basis. The large number of things that can impact the value of a stock can also cause such volatility and unpredictability in the markets. We won’t examine everything that could potentially affect the value of a stock, but will focus on some that are the most easy to identify and look for.
We’ll start by looking at a few things that a company could do that may have an impact on their stock price:
- Releasing their earnings and/or profits
- Releasing future earning or profit estimates
- Announcing their dividends
- Debuting a new product
- Announcing a product recall or product warning
- Announcing a new contract or the cancellation of a current contract
- Announcing cost-cutting measures, restructuring or employee layoffs
- A takeover or a merger of the company
- A change in management at the executive level
- A scandal
Any of these could have an immediate and possibly a drastic effect on the day-to-day operations of the company and its future outlook. This obviously can greatly affect the price of a company’s stock causing it to increase or decrease in value.
The value of a company’s stock can also be impacted by outside forces. Industry performance can sometimes lead to an increase or decrease in value. For example, if the stock price of certain companies in the same industry are rising this can sometimes in-turn lead to an increase in stock prices of other companies in the same industry. On the other hand, a competitor’s bad news could potentially lead to another company getting a greater market share or profits which may increase their stock’s value.
There are also several outside economic factors that can affect a stock’s price. Some of these include:
- Interest rates
- Positive or negative economic outlook
- Inflation and deflation
- Changes in commodity prices
- Economic or political turmoil or scandal
- Changes in a government’s economic policy
- Change in the value of the Canadian dollar
Anything that can affect the value of money, or improve or hurt the overall economy can also have an effect on stock prices. Also looking at this list it looks like any kind of economic news no matter what it is, could potentially impact stock prices. This can lead to the volatility and unpredictability of the markets.