What moves a share price

A share price is a number produced by an order book, and an order book only knows about imbalance between buyers and sellers. Everything described as a cause of a price move is really a description of what changed somebody's willingness to buy or sell at the previous price. Four broad classes of cause do that. Three of them are information about the future of the business or the rate at which that future is valued. The fourth is not information at all.

The frame every explanation sits inside 

The conventional account of what a share is worth has two moving parts: the cash the company is expected to generate in the future, and the rate at which that future cash is discounted back to today. A revision to either one moves the price. That frame is a convention rather than a law, and practitioners disagree about how much of daily movement it explains, but it is useful because it separates the two things that are constantly conflated. A share can fall on a day the company's prospects improved, if the rate applied to those prospects rose further.

Results, and the expectation that preceded them 

The single largest scheduled source of company specific movement is the periodic results announcement. What is easy to miss is that the reaction is not to the reported figures. It is to the distance between the reported figures and what had already been assembled into the price before they arrived, which is why a company can report its highest profit on record and see its shares fall.

A results announcement is also more than one document. Alongside the reported period sits the guidance for the coming one, a management call in which that guidance is questioned, and any revision to previously stated plans. Guidance frequently carries more weight than the reported period, because the reported period is history and the guidance is an input to the expected future cash the frame above rests on.

Interest rates and the discount applied to the future 

The second force reaches every share at once and originates outside every company. When the interest rate available on a risk free government bond rises, the rate applied to discount uncertain future company cash rises with it, and the present value of that cash falls. This is why an inflation print or a central bank decision moves whole equity markets on a day no company said anything.

The sector component and the market component 

A single share's daily move decomposes, roughly and after the fact, into a market wide part, a sector part and a company specific part. The market part comes from anything that reprices all equities together: rates, growth expectations, a broad shift in risk appetite. The sector part comes from something that reaches one group of companies: a commodity price, a regulatory decision, a peer's results read across to everybody selling the same thing. Only what is left is about the company.

The proportions are not stable. In calm periods the company specific part is comparatively large and shares in one sector separate. In a market wide move the shared part dominates and almost everything travels together, which is one description of what happens in a sell off. The relationship between these components is covered in the guide on sector groups and how they move.

Supply events, which are not information at all 

The fourth force changes how many shares are available at the current price without changing anything about the business. A repurchase programme places a persistent buyer in the book. A new share issue or a placing adds supply. A lock up expiry after a flotation releases shares that were contractually unable to trade. Index inclusion obliges every tracking fund to buy on one date, and exclusion obliges every one of them to sell. A forced liquidation of a large holder's position sells regardless of price. A change to a company's free float changes its index weight, and every tracking fund adjusts to match.

An order book cannot tell the difference between an imbalance caused by news and an imbalance caused by a calendar. Both are simply more buyers than sellers, or the reverse, and both move the price. This is the mechanism behind a great many moves that look inexplicable on the company's own facts, and it is one reason why an explanation offered after the fact should be treated as one candidate rather than as the cause.

Why the same news moves two shares differently 

Identical information delivered to two companies produces different sized moves, and the depth of the order book is a large part of the reason. A share with many resting orders at every price level absorbs an incoming imbalance across a small distance. A share with a thin book absorbs the same imbalance by moving further. Timing compounds this: news arriving while the venue is closed is not absorbed at all until the opening auction, at which point the whole revision appears as a single gap rather than as a sequence of trades.

What a move cannot be read as evidence of 

Several inferences are commonly drawn from a price move and are not supported by the mechanism that produced it. A move is not evidence of its own explanation: the explanation offered in commentary is assembled after the fact from whatever news is available, and supply events frequently leave no narrative behind them. Volume accompanying a move does not identify who was transacting or why, because every trade has a buyer and a seller and the tape does not record either one's motive. A large move is not evidence that new information was correct, only that positions were repriced. And the absence of a move is not evidence that news was unimportant, because an outcome that matches what was already expected changes nothing that was not already in the price.