Because of fluctuations in supply and demand, stock prices in a stock market tick regularly up and down. When more people want to buy a stock, it’ll boost its market price. If more people want to sell a stock their price will drop. The supply-demand relationship is highly vulnerable to present-day news.
Nevertheless, chasing news isn’t a good strategy for individual investors to stock-pick. Skilled traders in most cases respond in anticipation of an incident, not when reporting the incident.
How News Affects Wall Street
Say Microsoft records a hefty rise in its quarterly earnings year-over-year. That is good news.
But Wall Street would have predicted an even sharper rise. The stock price may fall.
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 study could expect declining revenues in the tech sector as a whole. Microsoft stock, along with any other tech company out there, could fall.
That is one reason why so-called conservative stock pickers favor a policy of buy-and-hold. They should ignore the noise of the hour to the hour, sure that the stock of a good company will go up in the long term.
Good News/Bad News
Bad news usually results in people selling stocks. A poor report on results, a breakdown in corporate governance, large-scale economic and political instability, and tragic events all translate into selling pressure and a collapse in the prices of many, if not most, stocks.
Good news typically can encourage people to purchase stocks. Good earnings reports, a new product announcement, a corporate acquisition and positive economic indicators all translate into buying pressure and stock price rises.
When Bad News is Good News
For some stocks the bad news is good news for others.
For instance, news that a hurricane has landfall may cause a decrease in utility stocks, in anticipation of expensive emergency response and repair. Insurance stocks can take a hit on the reports, depending on the intensity of the storm.
Meanwhile, home improvement retailers’ inventories will grow in expectation of higher sales in the coming months.
