What drives stock prices?

A lot of things drive stock prices. Let us consider various factors that can shape the price of a stock. First, supply and demand are two important factors that drive stock prices. For there to be a stable price for a particular stock, there should be a straight balance between the rate at which people are willing to sell and buy the stock. In a case where a lot of people want to buy shares, but few people are willing to sell, what you will notice is an increase in the stock price.

The price also goes down if more people are ready to sell, but there are only a few people who are willing to buy. Another factor is the current earnings of a company. This is another important factor that determines stock prices. I think this is simple to understand. When a company is recording a huge profit, it will also affect their stock price, and also influence what investors get as dividends.

Stock prices are fundamentally driven by supply and demand and what investors think a company is worth. The price goes up if a large number of people want to buy stocks. The price goes down if more people want to sell instead of buy. However, what makes people want to buy a particular stock and not another? The answer to that is not clearly known and there is no one theory that adequately explains what drives stock prices.

Typically the most important factor is value but value is not the same as stock price. For example, Internet companies were able to raise billions of dollars during the so-called dot.com bubble from 1997 to 2001, despite the fact that few, if any, of the companies had made a profit.