request: how does a company’s stock rise/fall so quickly immediately after earnings?
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A stock sale is made by matching a person willing to sell for at least $x with a person who’s willing to buy for at most $y.
A lot of time, people already have buy orders in for a given price. (“Buy shares or IBM if it ever drops below $90”)
When the earnings report comes out, sometimes people are eager to sell their shares, so they’ll quickly get matched with these people without waiting buy offers.
Investors in companies can be anything from someone to a Robinhood account to large institutional investor with potentially billions invested.
Earnings in a public company are a closely guarded secret and nobody in the company is allowed to trade based on the information. Companies will give guidance on what they expect for the quarter in terms of revenues, profits, etc.
These companies will have quarterly earnings calls after a fiscal quarter. They explain what the earnings actually were. Everyone gets this information at the same time. Investors will look to immediately buy shares or sell shares depending on how the company does in the earnings call.
Earnings day volume can be much much higher than a normal trading day. Think 5x a normal trading day. More shares trading hands means price movement can be bigger.
It doesn’t always. It falls or spikes a if reported earnings are a surprise, either on the upside or the downside. If they’re in line with estimates, share prices don’t move much, typically.
Also sometimes the top line numbers don’t tell the whole story. It’s only after digging into the numbers more, investors can buy or sell heavily. And that takes a bit of time. So you can have earnings released at 4:30 say, after hours trading is flat. But then the next day after digesting the full report the price can bounce or fall 5% because the full report tells a different story than the top line numbers.
Stocks represent ownership in a company. The value of a company is very heavily based on its earnings and profit, so when earnings are released, it can have a large impact on what people think the company is worth.
It’s also worth nothing, that the price will change based on reality vs expectations. Let’s say the expectation is that a company will lose 100 million. The current stock price would reflect those general expectations.
If they announce they only lost 50 million, the stock price would go up, because losing 50 million is good news, when you are expecting to lose 100 million.