Prices rise when there are buyers banging on the door for those shares. Without buyers a share's price will fall. The more buyers there are to create demand, the higher a share price will go.
A number of factors trigger this interest – each signalling to investors that this is a share they really want to be holding.
What's the story?
Share prices will move up or down in reaction to news relayed in the media. This might be general information such as the latest employment statistics or news about the country's balance of payments, or a new Government initiative that favours a particular industry.
Very often the reaction comes down to whether the news improves or dents investor confidence, which is why buyers and sellers react strongly to the unexpected. The bigger the news story no one saw coming, the bigger the impact on share prices. When buyers have already anticipated something in the news – like an announcement on interest rates – share prices don't tend to budge that much. That's because the news event was factored in beforehand.
The power of the press
But what if the news is particular, not to say downright personal, and turns an event into a headline story? Media interest can make or break any celebrity, and in the same way what's written in the press – the good and the bad – will stick to a company's image like glue. This is all the more likely if customers on social media pick up the story. If a company does something that wins customer approval, it can expect a boost to its reputation which will bring in more customers, increase sales, and drive up the share price. When the news is bad… well, we can all picture the outcome in this scenario.
Yes, you can point your finger at the economy. Whether your share price rises or falls, in all probability it could be in response to how the Government is managing the economy. An economy trucking along nicely bolsters buyers' confidence, as they know the climate is right for companies to perform well. Strong profits can mean a generous dividend for shareholders with a nice knock-on effect on the share price. Everyone's happy.
Don't catch a chill
Investors get nervous when there's an economic ill wind blowing. Fears grow for company sales and its overall financial health. Even shareholders invested in the most durable companies capable of weathering such a storm, may have to sit out an unfair dip in their share price until the economy comes up with some good news stories.
Essentials vs extravagances
Some shares are particularly prone to price movements – a typical example is a retail company hit by a recession. The doom and gloom felt by consumers feeling the pinch immediately impacts on that business. Research from PwC showed that in the first half of 2012 (when the current cycle of the UK's last recession was at its peak) an average of 20 high street chain stores were shutting their doors every 24 hours. It was all non-essential goods that suffered these closures – toys, clothes, jewellery, cards and furniture. Discount and convenience stories mostly managed to buck the trend.
Companies whose output is more essential – pharmaceuticals immediately springs to mind – won't take the same severe knock to sales during a recession. This means their share prices should hold steady. Whereas few people would refuse to pay for an essential medicine, many would delay splashing out on a new outfit.
Kiss and tell shockers
All companies listed on the stock market must publish their financial results twice a year. Financial results are essentially trading updates shining a spotlight on performance for shareholders.
Companies must also go public on any event that could influence their share price. A take-over bid, for example, merger talks with another company, or on a more positive note, the launch of a new product. These are called regulatory announcements and, crucially, must be made by the company first before the news becomes common knowledge.