why do share prices rise and fall
When a company does well in the marketplace, financial indicators such as revenue and earnings rise. When companies publicize these healthy fundamentals, theirВstock price is likely to rise as well. In the long run, no matter what happens to prices from day to day, a healthy, growing company's stock price should increase. Investors themselves can make stock prices rise through optimism. If the market becomes upbeat about a companyвs future, demand for the stock will jump as investors value it more highly, causing the price to rise.
This effect of market valuation makes stock prices fluctuate daily and weekly.
Share prices can be affected by a wide variety of issues but the two principal factors are the performance of the company that has issued the shares and the wider environment. Listed companies publish their financial results twice a year. They provide trading updates twice a year as well. These figures and statements give the investment community an insight into a company s performance.
Companies are also obliged to publicly notify any event that could influence their share price, such as a takeover bid or the launch of a new product. These are known as regulatory announcements and they must be made via a regulatory channel known as an approved RIS (Regulatory Information Service) before the information is published anywhere else. For more information on RNS the Exchange s RIS please.
Investors can also find out information on a company from external sources, such as the press, stockbroker reports and specialist magazines or websites. If a company is performing well, and is expected to continue to do well, its share price should benefit. Share prices tend to anticipate the future so they can rise if a company has good prospects and fall if the outlook is not promising. Share prices are also affected by the wider environment.
If economic conditions are good and expected to continue that way, investors tend to feel confident. Companies are more likely to perform well and deliver strong profits when the economic climate is benign so they are more likely to pay rising dividends. Under such circumstances, demand for shares tends to rise and prices increase; If the economic climate is difficult however, investors may feel nervous. They may worry that a company s profitability will suffer if economic conditions are difficult.
Fears about future profits tend to reduce demand for shares so prices may fall. This means that, in tough times, robust companies can see their share price fall, even if they are doing well. Conversely, companies can benefit from a rising market and their share price may go up, even if the underlying business is lacklustre. Over the long-term however, markets tend to reward robust, well-managed companies and their share prices rise.
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