News can affect stock prices. When more people want to buy a stock, it’ll boost their market and stock prices. The supply-demand relationship is highly sensitive to present-day news.
Nevertheless, chasing news isn’t a smart practice for individual investors to stock-pick. Professional traders in most cases react in anticipation of an event, not when reporting the event.
How News Affects Wall Street
A day later, traders can decide that the price for Microsoft has fallen below its fair price. In expectation of even stronger sales coming in the current year, they would buy it, pushing the share price upward.
Hours later a new report could predict slowing sales in the tech sector as a whole. Microsoft stock, along with every other tech company out there, could fall.
That is one reason why so-called conservative stock pickers prefer a strategy of buy-and-hold. They can ignore the noise of the hour to the hour, confident that the stock of a good company will go up over the long term.
Good News/Bad News
For some stocks, the bad news is good news for some.
For instance, news that a hurricane has landfall may cause a decline in utility stocks, in anticipation of expensive emergency response and repair. Insurance stocks will take a hit on the news, depending on the severity of the storm.
Meanwhile, home improvement retailers’ inventories will rise in anticipation of higher sales over the coming months.
Anticipating the News
Professional traders spend a great deal of their time trying to anticipate the next news cycle, so they can buy or sell stocks before they release the actual numbers.
First is the government’s economic reports. They are among many government reports that are used as indicators lagging behind and leading indicators. Leading indicators are more highly prized, such as those durable goods orders.
Second is company and industry news. Literally, Quarterly Reports are old news. Traders want to know how orders shape right now, what products get hot, and which trends are dying.
The third is gossip. Business news reports often state that the revenues or sales of a company met or failed to meet a “whisper number.”
That’s exactly what it sounds like. Wall Street professionals exchange gossip in the absence of hard evidence, some of it based on reliable knowledge and some not.
Traders may believe they are pricing in risks but there is no end to the possibilities of things going wrong.
So, it’s bad news that pushes markets in one direction or the other – not just any old news.
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