What Makes the Stock Market Go Up and Down?

Every day, investors buy into and sell out of positions in the stock market, causing the market value to move up and down throughout the day. Movements in market indices provide a way to track how the stock market is doing at any given point in time.

The stock market has exposure to different sectors and sub-industries whose movements can be tracked by sector exchange-traded funds (ETFs). Changes in the stock market boil down to the basic economic principles of supply and demand. Underlying changes to supply and demand result from current events and economic reports.

How Often Does the Stock Market Fluctuate?

The stock market fluctuates daily, even on days the market is closed. Larger swings in the U.S. tend to happen around the first week of each month when the U.S. Bureau of Labor Statistics releases its report on changes in employment levels. Increased market volatility also happens during what is known as earnings season, which is when publicly traded companies report financials and business operations for each of the four annual quarters.

Factors that Change the Stock Market

Here are some of the factors that move the stock market.

Supply and Demand

At its core, the economics of supply and demand are the basis for what causes the stock market to rise and fall. When demand for a stock or ETF (What is an ETF?) rises, shares of the stock or ETF are bought up, causing the supply of shares at the current price available for purchase to decrease. This means that buyers need to be willing to pay more for shares, leading to increases in stock prices. On the flip side, when demand drops, the supply of shares being sold is higher than the number of shares investors want to buy, causing the stock price to drop.

Let's use GameStop as an example. When a large number of investors began buying shares of GME, there were not enough shares available for sale to keep GameStop's share price in its normal range under $20. As a result, the massive buying caused GameStop's share price to rise above $200 since all the shares that were being sold under that range had been purchased.

But what causes the actual supply and demand for a stock to shift? Read below to find out.

Investor Sentiment and Current Events

Market sentiment and current events go hand-in-hand. Current events can cause investors to change their outlook on certain stocks or industries. Current events typically include things like company reports or political news.

When investors see a company beat earnings expectations or see other positive news about a company, they tend to buy more shares of the company as their sentiment turns positive.

For example, Amazon's Q2 2023 earnings report significantly beat expectations, leading to an 8.7% rise in its stock in after-hours trading. The company reported revenue of $134.4 billion, up from $121.2 billion the previous year, and a profit of $6.7 billion, compared to a loss of $2 billion a year ago. The earnings beat was attributed to strong e-commerce and cloud sales, with Amazon Web Services (AWS) sales improving by 12% to $22.1 billion. The stabilization of AWS, increasing importance of generative AI to AWS's customer base, growth in digital advertising and improvements in delivery speed to U.S. Prime members were seen as crucial factors. This performance demonstrated Amazon's resilience amid market speculations and potential regulatory challenges, affirming its leading position in the e-commerce and cloud sectors.

Current events can cause investors to pull out of the market, buy into the market or move their money around to industries that benefit from the recent event.

For example, throughout the summer of 2023, AI stocks have been relatively outperforming the broader global market. This overperformance is driven by anticipations of the coming AI innovations, sparking investor interest in companies positioned at the forefront of this technology. As a result, AI-focused stocks and related market indices have seen significant boosts to their market caps, as investors try to front-run the wave of AI advancements that promise to reshape various industries.

The focus on AI during the summer of 2023 was a widespread event that caused a noticeable shift in the stock market. The anticipation of AI breakthroughs catalyzed a renewed interest in tech stocks, positioning AI as a core component of future technological landscapes. This circumstance led to the strong performance of AI stocks, whose valuations continue to rise as a result of increasing research, development and prospective implementation of AI solutions across different sectors.

Reckless speculation can also cause the market to shift — such as in the tech stock collapse in the early 2000s when company stock valuations had reached levels not seen before.

The Economy

Economic reports and monetary policy can also affect the stock market. Violent bear markets in certain businesses, interest rates and real estate crashes make a difference.

Let's use the stock market sell-off in March and April 2020 as an example. When investors realized that COVID-19 would shut down the world and force many global economies to go into lockdown, investors panicked and sold their investments as businesses would likely not generate cash flow in a closed economy. Airline and cruise stocks were especially hit as travel bans were put in place.

Jobs and inflation reports published by reputable organizations and government entities also give investors a glimpse into whether a given economy is growing, shrinking or remaining stagnant. For example, when unemployment is high, people are generally making less money, which means they have less disposable income. As a result, industries that rely on discretionary consumer spending, such as movie theaters or malls, are likely to see their share prices fall since investors expect them to generate less revenue.

Interest rates also have significant effects on the stock market. Investing in the stock market poses the risk that you might lose money. In contrast, interest rates set by the Federal Reserve are seen as a minimum rate of return that investors can expect with zero risk. With higher interest rates, investors are less inclined to put their money into the stock market as the potential return may not be worth the risk when they can see a guaranteed return on their investment through interest-generating assets (such as bonds).

Additionally, higher interest rates mean a higher cost of borrowing for firms. As a result, growth stocks become more limited in how much they can borrow and spend, which can inhibit their ability to turn profitable and generate shareholder value.

Trends in the economy can also affect where money is invested in the stock market. Yield curves are a way to gauge whether the economy is in an expansion or recession or is stagnant but are not an absolute determinant of how the stock market will perform. When yield curves show an upcoming economic recession, investors are likely to pull out of cyclical industries and move into industries that typically perform well in economic downturns, such as consumer staples. On the flip side, when yield curves show economic growth, investors tend to put their money into growth industries such as innovative tech companies (How Important Is The Yield Curve?). 

What Are the Best Stock Market Indicators?

The world has become increasingly globalized. Events and trading in Asia and Europe can often affect U.S. stocks. U.S. exchanges are open from 9:30 a.m. to 4 p.m. EST, meaning that U.S. exchanges are not representing ongoing global shifts 73% of the day, despite U.S. equities being traded around the clock. Trading on U.S. equities when the market is closed results in gaps that are not reflected in U.S. exchanges until its next open.

This is where futures come into play. Futures track changes in international markets and are often a good indicator of how U.S. exchanges will perform when the market opens.

Benzinga provides a daily briefing on futures several hours before the market opens. You can find today’s peek into the markets here.

Treasury Yield Rates

Changes in interest rates — specifically the 10-year yield — carry significant power in affecting the market value. You can view the latest Treasury bill yields here.

Where Can I Find Important Market Information Ahead of the Market Open?

Benzinga hosts a PreMarket Prep show every morning ahead of the open. The show is a live, premarket interactive show with two veteran traders and features finance industry guests discussing market movers, key technical levels and trading ideas. You can tune in and watch through Apple Podcasts, SoundCloud, Stitcher, YouTube and additional sites listed here.

For the latest information on premarket news and movers, head over to Benzinga’s PreMarket Overview.

Stock Movers

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Crucial Understanding

Understanding the factors that drive stock market fluctuations matters deeply for investors in 2023. Supply and demand, current events, economic reports and investor sentiment contribute to these movements. Analyzing economic indicators and tracking futures and Treasury yield rates can provide valuable insights. Benzinga offers resources to help investors stay informed and make informed trading decisions.

Market Moving News

Investors need to have an understanding of current economic conditions and to keep up to date with recent events that can move markets. To stay on top of the markets, come to Benzinga for all things stock market.

Frequently Asked Questions

Related link: COMPARING STOCK INDICES