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Why Stocks Fall Even with Good News?

Why do stock prices dive even when the news is good? There can be several reasons for that. The short answer is that there are so many different factors that affect stock prices. News is just one of them.

Institutions wanted to wait until the news before they sell

Sometimes big investors such as funds and institutions have already made the choice to let some of their holdings go. They however, want to wait until the next quarterly report from the company.

In this case, even if the goods are new, if a big investor sells a lot of shares, the markets are going to fall if there are not enough buyers to match the amount of sold shares.

Investors expected even better news

Even if the news is good, they might not be as good as investors expected. Therefore, even good news can be bad news. This again might lead some investors to sell their positions, and if the buyers don’t match the sellers, the price is going to fall.

A lot of the information is already in the prices

Regular investors are the last to hear about the big news. As soon as something comes out, the big players will hear it. You will hear it after a newspaper reporter or someone else makes an article about it.

When that comes out, the big players have already made up their minds. The price might have gone up or down, but you likely are the last to hear the news.

Herd behavior

Herd behavior is one thing that affects markets and can have a huge impact. Even if all the companies report really good news, the stocks might go down, if they are already in a downtrend.

People are afraid that the fall never ends and will sell their positions, making the markets fall even more. No matter how good the news is, when investors are afraid, they will sell, and the markets will fall.

This happened during the 2020 when covid was still a new thing. Nothing had really changed in the markets, yet the markets lost around 30% in just a month. This was herd behavior at its best.

Herd behavior goes the other way around as well. When stocks are rising for longer periods of time, investors completely forget that they can also go down. FOMO, (Fear of missing out) might hit in and make investors make really stupid purchases at ridiculous prices.

There are simply more sellers than buyers

One simple reason stocks might fall is that there are simply more people determined to sell the stock that day than there are people to buy it. It can be simply because of supply and demand.

It might also be that there are buyers, but they simply won’t pay such a high price from stocks that day. If sellers place market orders, meaning they will sell the stock to the highest bidder, the stocks can go down. This can be enough to set the ball rolling for a longer fall.

Stocks can rise even with bad news

Even if the news is bad, stocks can rise because the news is not as bad as expected. There can be other factors affecting markets as well, but this goes both ways. Like I mentioned before, even with good news, if the news is not good enough, the stock price might take a hit.

Final words

There are so many different factors that are driving the markets, it is nearly impossible to predict them all. No matter the news, the people with the most purchasing power and holdings have the most impact on the prices of stocks.

Your one Testa stock doesn’t really make a difference in a bigger game. If someone with ten thousand shares decides it is a selling day, your one stock doesn’t really make a difference in the big picture.

I’m not saying this to discourage you. It is just reality. There are benefits on being a small investor as well. You can buy even the stocks of smaller companies without affecting the price to good or bad. Institutions with billions to invest, they can’t touch those companies. Or at least it wouldn’t make a difference to their portfolio unless they bought the whole company.

Other investing-related posts can be found here.

Hopefully this was helpful to you, have a nice day.

This is not investing or financial advice. Always do your research before risking your hard-earned money. Past returns of the markets are not a guarantee of future returns.