Why Do Stock Prices Go Up and Down? The Key Factors

Stock prices rise when buying demand is greater than selling pressure, and fall when more investors sell. Their movement is shaped by company performance, earnings outlook, interest rates, inflation, exchange rates, government policy, global conditions, news, sentiment and investors' expectations about the future.

Key Takeaways

• Direct cause: stock prices are formed where demand and supply meet on the exchange.

• Prices rise: when buying pressure is stronger than selling pressure.

• Prices fall: when the number or urgency of sellers is greater than that of buyers.

• Internal factors: earnings, revenue, debt, dividends, management and corporate actions.

• External factors: interest rates, inflation, exchange rates, the global economy, politics and government policy.

• Market sentiment: news and expectations can move prices even before company performance changes.

• Key principle: a stock price reflects not only current conditions but also investors' hopes for the future.

Introduction

Stock prices change every day because investors keep updating their assessment of a company's value and prospects. The change shows up in price movements on the exchange: up when buyers are willing to pay more, and down when sellers are willing to let go of shares at a lower price.

Indonesia's Financial Services Authority (OJK) explains that rises and falls in stock prices are normal because they are driven by the forces of supply and demand. OJK also divides the causes into internal company factors and external factors from the wider economic environment.

By understanding the mechanism, investors can tell the difference between a price drop caused by a fundamental problem and a temporary drop caused by market sentiment.

The Short Answer: Why Do Stock Prices Change?

What: What changes?

What changes is the price agreed between buyers and sellers of a stock in the secondary market. This price can differ from a company's book value or intrinsic value because it is influenced by expectations, liquidity and sentiment.

Why: Why can prices rise or fall?

Prices rise when buying demand is greater than the supply of shares for sale. Conversely, prices fall when selling pressure is greater than buying interest.

Who: Who influences prices?

The parties involved include:

• Retail investors.

• Institutional investors.

• Investment managers.

• Securities firms.

• Policymakers.

• Analysts and other market participants.

No single party can legally control stock prices at all times. Prices are formed through the collective transactions of market participants.

When: When do prices usually move significantly?

Big moves often happen when there is:

• A new financial report.

• A dividend announcement.

• A change in interest rates.

• News of an acquisition or merger.

• A change in government policy.

• An economic or geopolitical crisis.

• A change in the company's earnings outlook.

Where: Where is the price set?

For shares listed in Indonesia, prices are set through transactions on the Indonesia Stock Exchange (IDX), based on its electronic trading mechanism and the capital market rules in force.

How: How do rises and falls happen?

If aggressive buyers take shares at the available asking prices, trades can move to a higher price level. If aggressive sellers accept the available bid prices, trades can move to a lower level.

Main Factors That Affect Stock Prices

1. Supply and demand

Supply and demand are the direct cause of changes in stock prices.

A simple example:

• Many investors want to buy shares of ABC at Rp1,000.

• The shares available at that price are limited.

• Buyers then become willing to buy at Rp1,010 or Rp1,020.

• The last traded price moves up.

Conversely, if many shareholders want to sell while buyers are only willing to buy at lower prices, the price will fall.

A rise in trading volume can strengthen a move, but high volume does not always mean the price will go up. High volume can point to buying accumulation, or to distribution and selling pressure.

2. Company performance and fundamentals

Company performance is an important basis for valuing a stock. Some indicators commonly analyzed include:

• Revenue growth.

• Net profit.

• Operating cash flow.

• Profit margin.

• Earnings per share (EPS).

• Debt ratio.

• Return on equity (ROE).

• Dividend payout ratio (DPR).

• Price-to-earnings (P/E) ratio.

• Price-to-book value (P/B).

Companies with consistent profit growth are usually more attractive to investors because they have the potential to raise the company's value. However, higher profit does not automatically push the stock price up if the result was already expected or the valuation is already too expensive.

3. Expectations about the future

The stock market tends to look ahead. For that reason, prices can rise before financial reports show higher profit, as long as investors expect future performance to improve.

Conversely, prices can fall even while the company still reports a profit if the market expects:

• Sales growth will slow.

• Production costs will rise.

• Competition will get tougher.

• Debt will become more expensive.

• New regulations will squeeze margins.

• Consumer demand will weaken.

This is why stock prices do not always move in the same direction as the latest performance news.

4. Interest rates

Interest rates affect stocks through several channels.

First, higher interest rates can make time deposits and bonds more attractive than stocks. Some investors then cut their exposure to stocks.

Second, companies with floating-rate loans can face higher interest expenses. If profit falls, the stock's valuation can come under pressure too.

Third, interest rates are used in valuation calculations. Higher rates can raise the discount rate, so the present value of future cash flows becomes lower.

As official data, Bank Indonesia recorded its benchmark BI-Rate at 5.75% on July 22, 2026. Before that, the BI-Rate stood at 5.50% on June 9, 2026 and 5.25% on May 20, 2026.

A change in interest rates does not affect every sector the same way. Banks, property, technology, commodities and heavily indebted companies can each respond differently.

“When bank interest rates soar, the prices of shares traded on the exchange tend to fall sharply.” Indonesia's Financial Services Authority (OJK).

5. Inflation

High inflation can raise the cost of raw materials, labor, distribution and operations. If a company cannot pass the higher costs on to consumers, its profit margin can shrink.

Inflation can also push the central bank to raise interest rates. As a result, pressure on stock valuations can arise through the cost of capital and changes in investment choices.

The impact depends on the sector, though. Commodity producers or companies with strong pricing power may be able to raise their selling prices, while thin-margin businesses tend to be more vulnerable.

6. The rupiah exchange rate

Changes in the rupiah's exchange rate against the US dollar can affect:

• The cost of imported raw materials.

• The value of foreign currency debt.

• Export revenue.

• Operating costs.

• Company profit.

A weaker rupiah can hurt importers and companies with dollar debt. Exporters, on the other hand, can benefit when dollar revenue is converted into rupiah, although the effect still depends on the cost structure and hedging policy.

OJK notes that rupiah fluctuations can have a positive or negative effect, especially for companies with debt burdens in foreign currencies.

7. News and investor sentiment

Sentiment is investors' collective perception of market conditions or prospects. Positive sentiment can drive buying, while negative sentiment can trigger selling.

Examples of sentiment triggers include:

• Acquisition news.

• A change in management.

• Credit ratings.

• Lawsuits.

• Governance issues.

• Regulatory changes.

• Geopolitical conflict.

• Disappointing economic data.

Sentiment can move faster than fundamentals. That is why a stock price can swing sharply on nothing more than a rumor or news that has not been fully confirmed.

8. Corporate actions

Corporate actions can change a company's ownership structure, share count, financing or business prospects. Examples include:

• Dividends.

• Stock splits.

• Reverse stock splits.

• Rights issues.

• Share buybacks.

• Mergers.

• Acquisitions.

• Divestments.

• Limited public offerings.

The impact is not always positive. A buyback can be seen as a sign of management's confidence, but a rights issue can raise dilution worries if the funds raised are not used productively.

OJK lists mergers, acquisitions, rights issues and divestments as examples of corporate actions that can affect stock prices.

9. Global economic conditions

The Indonesian market can be affected by global developments because investors and companies are linked through trade, capital flows and exchange rates.

Global factors include:

• Federal Reserve policy.

• Oil and commodity prices.

• World economic growth.

• War and geopolitical tension.

• Supply chain disruptions.

• Shifts in global investors' appetite for risk.

When global investors cut risk, money can flow out of emerging markets. That can put pressure on the index and on particular stocks even if a company's fundamentals have not changed drastically.

10. Liquidity and market structure

Stocks with low liquidity can see bigger price swings because relatively small trades are enough to move the price.

Factors to keep an eye on include:

• Average daily volume.

• The gap between the buy price and the sell price (the bid-ask spread).

• The number of shares outstanding.

• Public ownership.

• The depth of the order queue.

Liquid stocks are usually easier to trade, but they can still see high volatility when big news hits.

Official Data and Supporting Facts

Macro data has to be read together with company data. A single economic number is not enough to decide whether a stock is worth buying or selling.

Case Study: The Impact of a Rate Hike

Suppose company ABC has floating-rate debt and most of its revenue comes from the domestic market.

When interest rates rise, several things can happen:

1. The company's interest expense goes up.

2. Net profit could fall.

3. Investors lower their EPS estimates.

4. The stock's valuation becomes lower.

5. Some investors move their money to fixed-income instruments.

6. Selling pressure increases and the stock price weakens.

However, the market's reaction can be different if ABC has a large cash balance, low debt, strong pricing power and the ability to raise its product prices. In other words, a rate hike is not an automatic sell signal; investors still need to check the company's financial structure and prospects.

This example is consistent with OJK's explanation that rising interest rates can push investors toward bank instruments while also raising companies' borrowing costs.

Pros and Cons of Price Movements

Pros

• Gives the chance to earn capital gains.

• Lets investors buy quality stocks at lower prices.

• Reflects the market's process of valuing new information.

• Pushes companies to improve performance and transparency.

• Provides liquidity for shareholders who want to sell their holdings.

Cons

• Can lead to capital losses.

• Volatility can trigger emotional decisions.

• Prices can be swayed by rumors or unverified information.

• Low-liquidity stocks are harder to sell at the price you expect.

• Short-term moves sometimes do not reflect fundamental value.

Practical Tips for Investors

1. Set your investment goals and time horizon before buying stocks.

2. Study financial reports, not just price charts.

3. Check revenue, profit, cash flow, debt and the ability to pay interest.

4. Compare a stock's valuation with similar companies.

5. Keep an eye on interest rates, inflation, exchange rates and global economic conditions.

6. Read the disclosures from IDX and listed companies.

7. Tell facts, opinions, rumors and baseless recommendations apart.

8. Avoid putting all your money into a single stock.

9. Use risk limits that match your financial capacity.

10. Don't sell out of panic before you understand why the price fell.

11. Make sure the securities firm and the investment product operate within a legal, supervised ecosystem.

12. Revisit your investment thesis when fundamentals change, not just when the price changes.

OJK reminds investors to do in-depth analysis, not to make decisions out of emotion and not to be swayed easily by other people's opinions.

“Know what you own, and know why you own it.” Peter Lynch, as quoted in OJK educational material.

That quote means investors need to understand what they own and why they own it. This principle helps reduce impulsive decisions when prices move against expectations.

FAQ

Does a rising stock price mean the company is definitely doing well?

Not always. A price can rise because of sentiment, rumors, speculative trading or expectations about the future. Investors still need to check fundamentals and valuation.

Why does a stock fall after the company announces big profits?

Most likely the market had already anticipated the result. If profit did rise but still came in below expectations, investors may sell the stock anyway.

Do rising interest rates always make stocks fall?

Not always. The impact depends on the sector, debt structure, cash, pricing power and investor expectations. A company with a lot of cash, or one that benefits from high interest rates, can respond differently.

Why can small news make a stock price move a lot?

Stocks can be very sensitive to changes in expectations. If liquidity is low or many investors use short-term strategies, small news can amplify buying or selling pressure.

What is the difference between a stock price and intrinsic value?

A stock price is the price formed in the market. Intrinsic value is an estimate of fair value based on analysis of the business, profit, cash flow, risk and growth prospects.

Is a falling stock price always a buying opportunity?

No. A drop can be an opportunity if fundamentals are still healthy and the valuation becomes attractive. But a drop can also signal structural problems such as excessive debt, declining competitiveness or poor governance.

What basic indicators should you check?

Beginner investors can start with revenue growth, net profit, cash flow, EPS, debt ratio, ROE, P/E or P/B valuation and dividend policy.

How can you avoid panic selling?

Make an investment plan, set your risk tolerance, use official sources and assess whether a fundamental change has really occurred. Avoid making decisions based on a single social media post.

Conclusion

Stock prices can rise and fall mainly because of changes in the balance between supply and demand. That balance is shaped by company performance, earnings outlook, valuation, corporate actions, interest rates, inflation, exchange rates, government policy, global conditions, news and investor sentiment.

A rising stock price does not always mean a healthier company, and a falling price does not automatically mean the stock is bad. A stronger assessment takes a combination of fundamental analysis, an understanding of macroeconomic conditions, a check of disclosures and risk management.

By understanding what moves prices, why the market reacts, who is trading, when volatility rises, where prices are formed and how the supply and demand mechanism works, investors can make more rational decisions and are less likely to be swept up in panic.