What moves a share price during the day
News, expectations and money flows — and why the third explains the moves the first two can't.
The surprise, not the news
A company reports profits twice as high as last year and the share falls. It looks absurd until you realise that yesterday's price already had an expectation built into it.
Analysts publish their own forecasts. These get pooled into a “consensus”, and the consensus is priced in before the result comes out. When the result arrives, the market doesn't ask “was it good?” but “was it better than what we'd already priced in?”.
That's why an excellent company can have a disappointing stock for years: if perfection was expected and only excellence showed up, the price has nowhere to go but down.
Guidance outweighs the past
In quarterly reports, the numbers for the quarter that just ended often move the price less than what management says about the quarter ahead.
There's a logic to it: a share is worth its future profits, not its past ones. The past only matters because it helps us judge the future.
So when you read that “the stock fell even though results were strong”, look at the guidance. That's usually where the answer is.
Flows that have nothing to do with the company
A good share of daily moves have nothing to do with the business. An index fund has to buy because new money came in. A pension fund rebalances at the end of the quarter. A company joining or leaving an index forces hundreds of funds to buy or sell all at once.
These are buyers and sellers with no opinion about the company at all. They act because their own rules tell them to.
That explains the moves that otherwise seem senseless, and it's a good reminder: not every price move carries information.
Key terms in this lesson
- Consensus estimate
- The average of analysts' forecasts — the bar a result has to clear to count as good news.
- Guidance
- A company's own forecast of its future results.
- Flow
- Buying or selling driven by rules and needs, not by any view on the company.
Quick check
A company reports better profits than expected, but the share falls hard. Where should you look first?
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