Learn what makes stocks go up and down and explore key factors that affect the price. Discover how LevelFields can help you make smarter stock moves.
Trading Strategies
June 26, 2025
Table of Contents
If you've ever looked at the stock market and wondered why some stock prices rise while others fall, you're not alone. Stock prices move for many reasons; some based on facts, others on feelings.
Understanding these shifts is key, whether you're new to investing or already trading.
In this guide, we’ll break down the nine main factors that affect stock prices. You’ll learn how supply and demand dynamics, investor sentiment, earnings reports, and broader economic trends all play a role.
Before diving into what makes stocks go up and down, it helps to understand how stock prices are set in the first place.
At its core, the stock market works like an auction. Buyers place bids for a stock, and sellers set offer prices. When the two agree, a transaction happens, and that becomes the stock’s latest transaction price.
As more investors trade, the stock price fluctuates.
If more people want to buy a particular stock than sell it, the price goes up. That’s high demand. If more investors are selling than buying, the price goes down.
This simple supply and demand dynamic is what sets stock prices throughout the trading day.
The share price is the current value of one share of a company’s stock. But on its own, it doesn’t tell you much about whether it’s expensive or cheap.
That’s where metrics like the price-to-earnings (P/E) ratio come in.
This shows the stock price divided by the company’s earnings. A high P/E might mean investors expect big growth; a low P/E might signal value or concern.
In short, stock prices change based on what investors think the stock is worth and how much they’re willing to pay today based on future expectations.
Stock prices rise and fall based on a combination of market sentiment, fundamental analysis, and supply and demand dynamics. But at the core, a stock’s price is determined by how much investors are willing to pay at any given time, often influenced by news, data, and emotion.
Here are nine key factors that explain what makes stocks go up and down.
At its core, the stock market functions like an auction. The price of a stock at any moment is set by how much investors are willing to pay (demand) and how many are willing to sell (supply). This interaction determines the latest transaction price.
When a company announces strong earnings growth, more people want to buy stock, but few want to sell. This imbalance pushes the stock price higher.
A company’s earnings reports are one of the most direct influences on its stock price. Investors evaluate whether a business is growing its revenue and profits faster than expected, and that changes how they view its future cash flows.
If a company surprises with better-than-expected quarterly profits and raises its outlook, its share price typically jumps, even if the broader market conditions are neutral.
This is why stock prices change sharply during earnings season.
Investor sentiment, how investors feel about the market or a particular stock, can significantly affect stock prices, regardless of company fundamentals. Even when a company has solid earnings, stock prices change if market sentiment shifts.
If investors feel confident after a company launches a promising product, they might buy stock, even before earnings are proven. This optimism pushes stock prices higher.
Sentiment is especially powerful for individual stocks and growth stocks, where future potential matters as much as current performance.
Economic indicators such as inflation, unemployment, GDP growth, and especially interest rates have a direct impact on the stock market. They shape expectations around company earnings, future cash flows, and overall financial stability.
If the Fed raises interest rates to fight inflation, borrowing becomes more expensive. This can reduce corporate profits and lower demand for stocks, leading to a drop in share price across sectors, especially in growth-oriented or small-cap stocks.
Large investment firms and financial institutions like mutual funds and hedge funds can also move the market with their trades. Their buying or selling decisions often influence how smaller investors perceive a stock.
If institutional investors buy heavily into a mid-cap company after strong earnings growth, retail traders may follow. The result: rapid upward momentum in the stock price fueled by supply and demand dynamics.
A company's stock price is often influenced by the broader health of its sector. Industry-specific trends, like rising oil prices or a boom in AI, can lift or drag entire groups of stocks, regardless of company performance.
A small-cap stock in the renewable energy space might gain traction when green energy policies are passed. Even if it hasn’t posted positive earnings yet, its growth story attracts investor capital, pushing its share price higher.
When a company goes public or issues new shares, it can impact the current stock price by altering supply and investor expectations. An initial public offering (IPO) often brings hype, but issuing new shares later can lead to share price dilution.
A startup might soar after its IPO due to excitement and media buzz. But if it later issues more shares to raise capital, investors sour, causing the stock price to drop due to dilution concerns.
When companies announce a merger or acquisition, it signals changes to their future cash flows and market position. These corporate events influence stock prices for both the buyer and the target.
If a tech company announces it's acquiring a competitor, the target’s stock price rises due to the offer price premium. Meanwhile, the acquirer’s price may dip if investors worry about integration challenges.
Two core approaches guide investment decisions: fundamental analysis, which values a company's stock based on earnings and growth, and technical analysis, which studies patterns in the stock market.
A stock with weak fundamentals may still climb if it breaks a resistance level, attracting traders. Conversely, a fundamentally strong stock may fall in a broad market downturn, showing how both analyses interplay in stock price fluctuations.
Understanding what makes stock prices go up and down is only part of the equation.
The other half? Knowing how to react when those price changes happen.
Here are some pointers to keep in mind.
Are you a day trader or a long-term investor? Your financial planning strategy should match your goals.
Long-term investors often ride out short-term volatility, relying on the future cash flows generated by the underlying business. Meanwhile, traders may look to buy and sell shares based on short-term market trends and technical signals.
Tip: The stock market tends to reward patience. Mature companies with stable earnings may grow more slowly but provide consistent returns.
A drop in a stock today doesn’t always mean the company’s future prospects are bleak. Sometimes the stock price drops due to temporary factors that don't reflect its real value.
These dips can be buying opportunities, especially if the fundamental factors like earnings or cash flow remain strong.
Tip: Stick to your investment plan and don’t make emotional decisions based on noise. Evaluate the underlying business, not just headlines.
When stocks swing, revisit the valuation multiples.
Compare the present value of the company’s expected future cash flows against its peers. A strong company trading at a discount could be a hidden gem. Just make sure you're not ignoring serious red flags.
Tip: Keep an eye on both economic factors and company-specific news. These affect sentiment and can help explain sudden price changes.
Positive developments in a company may cause its stock price to spike, but hype fades fast. If everyone is buying, that doesn’t mean you should. Evaluate whether the company's prospects justify the higher price or if it's just speculation.
Tip: Doing your own analysis is critical. Investing involves risk, and not every rally is built on solid ground.
When the stock market moves fast, it’s easy to miss opportunities or fall into traps.
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