Why do you think stocks go up. A mathematical perspective..

Its all about Earnings. Whether it is Earnings estimate or Earnings surprise or Earnings warning or beating the Earnings estimate; it is all about earnings. Stocks move up or down because of Earnings and meeting Earnings expectations or not meeting the expectations. Well, you might say stock movement is because of supply & demand. But supply & demand is the mechanics of why stock movement is seen. The attractiveness (demand) or repulsiveness (supply) of a stock is created because of the Earnings quality. More at:

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Submitted: Aug 3, 2007    Views: 234    Comments: 3    Likes: 4   


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Comments Received:

PhilR
PhilR

But is this really true? Supply and demand is the central reason stocks go up in my mind. Let me give you an example. Company A has the same PE over a ten year period but its stock goes up and down. Interest rates are low in one period and high in the other, impacting the amount of market flowing into and out of the stock market. Earnings influence stocks but they are just one factor.

Posted: Aug 3, 2007

PhilR
PhilR

I also forgot to mention things like Internet stocks that have no earnings at all. Of course, investors are looking at potential future earnings but that's not all that is driving the share price.

Posted: Aug 3, 2007

nidhi

PhilR,

I meant that supply/demand are the forces that come into play in expectations of Earnings. Earnings can mean higher expectations or surprises positively or negatively.

As I mentioned there can be speculation that can be driving the stock price higher or lower. And this speculation will be on the future earnings expectation at a later stage; though this earnings drive is very feeble at this point and people are still trying to lock in best prices for their stock. This is common among young tech and bio tech companies that still are not earning any earnings.

Posted: Aug 7, 2007



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