Stock Prices – When I first dipped my toes into the world of stocks, I had the same questions that I’m sure most beginners do: “What makes stock prices go up or down?” It seemed like such a mystery, right? The price of a stock could change by the minute, and I was trying to figure out why it wasn’t as simple as supply and demand, like buying a cup of coffee.
I’ve spent a lot of time learning about the key factors that drive stock prices, and I’ve learned that while it’s not a perfect science, there are a few key drivers that can really help you understand stock price movements. Let me walk you through the three main ones that I believe every investor should know.

Table of Contents
ToggleWhat Drives Stock Prices? 3 Main Factors You Should Know
1. Company Performance & Earnings Reports
This one is probably the most obvious, but it took me a little while to truly grasp. Stock prices reflect how well or poorly a company is doing, and a big part of that is the company’s earnings reports. Basically, if a company is making money, its stock price is likely to go up. If it’s losing money, well, get ready for the stock price to dip.
I remember the first time I bought shares of a tech company. The stock had been doing great, so I thought, “Hey, why not invest?” A few months later, the company released a quarterly earnings report that showed their profits were way down. The stock tanked overnight, and I felt like I’d been punched in the gut. I hadn’t done enough research into their upcoming earnings, and it cost me. I learned that you have to really pay attention to earnings season—when companies release their quarterly reports. You might think things are going great, but if a company posts weak earnings or even just misses Wall Street’s expectations, the stock can plummet.
It’s not just about earnings, though. If a company posts strong earnings, it can result in a big uptick in its stock price. I saw this happen when a friend of mine invested in an electric car company, and the stock soared after a positive earnings report. It was like watching magic happen right before your eyes! But, remember, earnings reports are just one piece of the puzzle. They can be a strong indicator of the stock’s future performance, but they’re not the whole story.
2. Market Sentiment & News
Market sentiment is basically the mood of the market at any given time. It’s influenced by all kinds of factors like economic conditions, political news, and yes, even social media. Let’s face it, the stock market is like a huge, temperamental creature. It can be running high one minute and down in the dumps the next, often based on the latest headlines.
I’ll give you an example. I had a stock in an airline company that was cruising along, doing just fine. Then one day, a report came out about a possible government bailout for the airline industry. Guess what happened? The stock shot up by double digits. Why? Because investors believed that if the government stepped in, the airline would be protected from a major financial crisis. But this market sentiment wasn’t just based on the company itself—it was tied to the overall belief that government intervention could save the industry.
But here’s the thing that tripped me up: Market sentiment is not always tied to reality. Sometimes, stock prices move based on rumors, speculation, or downright bad news. I made the mistake of buying into a stock just because it was being talked about everywhere, only to watch the price tank when the hype died down. The moral of the story? Always make sure you understand the underlying reason for market sentiment before you dive in. Don’t just chase the headlines.
In my experience, the best way to stay on top of market sentiment is to pay attention to the news and follow analysts or financial bloggers who give you the context behind the moves. Trust me, it’ll save you from a lot of confusion and potential losses.
3. Supply and Demand (and Economic Factors)
Alright, let’s talk about something that’s almost too simple but can still blow your mind. Supply and demand play a huge role in stock price movements. If a lot of people want to buy a stock, the price goes up. If there are too many people trying to sell, the price goes down. Pretty straightforward, right?
But the supply and demand for stocks isn’t just determined by regular investors like you and me. Big institutional investors, like pension funds and hedge funds, can create massive buying or selling pressure. And guess what? When the supply of shares is limited, but the demand is high (think of a hot tech IPO or a popular pharmaceutical company), the stock price can soar. It’s basic economics, but on a grander scale.
But what happens when the economy is doing poorly? When inflation is high, interest rates rise, and growth slows down, you’ll often see stocks fall. This is because, during economic downturns, investors become more risk-averse and may sell off stocks, especially the ones with higher risk. Think back to the 2008 financial crisis, or even the early days of the COVID-19 pandemic—those were times when the whole market was impacted by macroeconomic conditions, and stock prices across the board dropped sharply.
I’ve had my share of “oops” moments when the market was going through a downturn. One time, I got excited about a stock in the retail sector, thinking it was a great bargain after a dip. But what I missed was that the overall economy was slowing down, and consumer spending was plummeting. That stock kept sliding, and I ended up cutting my losses. It was a tough lesson, but I learned that understanding the broader economic picture is just as important as individual company performance when deciding whether to buy or sell.
Final Thoughts
So, what’s the takeaway here? Stock prices are driven by a mix of company performance, market sentiment, and supply and demand, all wrapped up in the context of the broader economy. They’re constantly shifting, and that’s what makes investing in the stock market both exciting and nerve-wracking. If you’re looking to get serious about stocks, you have to be aware of these factors—and be ready to adapt when things change.
But here’s the thing: no matter how much you study, you’re never going to have all the answers. I’ve had my fair share of stock picks that didn’t turn out like I’d hoped, and that’s okay. The key is learning from those moments, staying informed, and not letting the swings of the market drive you crazy. Keep an eye on those three main factors, and you’ll have a better grasp on why stocks move the way they do.