How does news affect stock prices?

News is something that affects stock prices. Whether you’re a long-term investor or a short term investor, it’s important to review the news headlines periodically. There may be positive news, negative news or news to which market may not react at all. One has to be smart enough to decode the news and quickly grasp whether it will affect his stocks in anyway and if yes, the degree to which the news can have an impact.

POSITIVE AND NEGATIVE NEWS.

News which is considered as positive tends to have a positive effect on stock markets and one can see share prices rising soon after the news come out in the open. Positive news — such as a joint venture agreement, securing of new orders, healthy sales numbers, , discovery of huge oil reserves in a country, excellent financial results of a company etc— should send a stock up. Stock prices react slowly but steadily to positive news.

  • A curious fact that I have noted in some cases is that good news doesn’t always translate to a jump in stock price; in fact, often the good news will produce a slight drop in a stock price. Why? Because unofficial news, also known as “rumors”, can have as much impact on stock prices as official news announcements. The stock market often anticipates these news stories and “prices in” its expectations accordingly. When those expectations are confirmed with actual investment news, the price may temporarily drop. Of course, the reverse applies, too: if rumors swirling around a stock aren’t proven true, investors may respond in surprising ways. If the surprise is a good one, stock prices can be driven upward as a result. That’s why it’s key to watch the investment news online and see how headlines influence stock quotes.
  • Another point observed is that good news at home and bad news abroad can adversely push stock prices down. The international market is intertwined within the home market. Sometimes, all it takes is a bit of bad news from overseas to have a down market day.

Negative news  has more far reaching effect on stock prices and investor sentiment than positive news. Stock prices react very heavily to negative news that it may seriously stop average people from wanting to buy stocks.

The sentiment of the market is also an important factor. In a largely negative atmosphere, the slightest bit of worrisome news is enough to send a stock tumbling.

‘GOOD’ BAD NEWS..

There are some news which might seem negative at first but it isn’t actually negative. For example, firing of CEO or top officials. This may sound very negative at first, but it does show that the company’s board of directors was bold enough to take drastic actions to help the company in the long run. Another example is lay-offs in a company. This is usually good for the company and its stock price because expenses will be reduced significantly and quickly. This should help increase earnings right away. It is not always a major warning sign; it could just be a reaction to a slower economy. It is one of the quickest ways a company can cut expenses if sales have not been meeting expectations.

STOCK BLOGS:

Apart from news that comes in Medias like television channels and news papers which brings out the actual news , Blog is another category that influences stock market investors. The difference between a blog and other Medias is that a Blog is usually maintained by an individual with regular entries of commentary. Most of them contain opinions on a particular event along with the actual news. So just in case you are confused about what’s going to happen in stock markets  after RBI hikes interest rate or what’s in store for apple after  Steve jobs era, these are sources to know what the people think about it.Following some good blogs on stock markets would help you to understand economic events better.

CONCLUSION

The news has a direct impact on the market. It can change a bad day into a good one or a good day into a bad one. The relationship between the news and the market can be highly unpredictable by the best analysts. The next headline can turn out to be a boon or a bust.

  • Good news will have a positive impact on stock prices
  • Stock prices reacts to negative news quickly than it would react to a positive news.
  • The good news locally can be overshadowed by the negative news across the globe.
  • In a negative atmosphere, the slightest bit of worrisome news is enough to send a stock tumbling. The opposite is also true. To an extend, news effects largely depend on the reigning sentiment rather than the actual significance of the news.
  • Just because the news is bad doesn’t mean the stock market will have a bad day.
  • News about the following affects stock markets: Crude Oil prices, IIP, Inflation, Unemployment, government policies, political unrest, draught or monsoon, company results, Global cues, FII activities, mergers and acquisitions , insider trading, bonus dividends and stock buy backs, stock splits, rights issue, inclusion or exclusion from indexes, change or death of top officials, loss of customers or break through deals, changes in demand and supply, fluctuations in prices of raw materials, war, terrorist attacks, joint ventures, rumors , new interventions etc…..

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2 Responses to “How does news affect stock prices?”

mike

October 26, 2011 at 10:19 pm

Can anyone provide me with there thoughts about MMAX. I’m new to penny stocks and would like to get a little advice to make a better evaluation of this company. Please assist if able. Can someone please look at the MMAX chart and news etc and help me???

Akshay

January 2, 2012 at 4:01 pm

following website will be useful in stock market schools – http://www.stocks-stcktrading.com/

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