How do Dow and S&P 500 just change over night or with negative news? Who manipulates the prices?
In: Economics
The price of a stock is based on how much money the company will pay in dividends to its investors which is based on how much money they make. If you are able to make 5% on average on your portfolio and you expect a company to pay out or reinvest $5 a share each year then you do not want to pay more then $100 per share in that company as you have better places to invest them which makes more money. It is more complex then that with spreading the risk by finding inverse correlating investments and such but this is the gist of it. If there is some sort of news, maybe even seamingly unrelated, that means you only expect the company to make $4 per share instead of $5 then you drop the price you are willing to trade the stock from $100 to $80. These types of evaluations happens both on a second to second basis though automated systems, minute by minute by traders making snap judgements and over the course of hours and days by analysists going deep into the data.
The reason for an entire market index to change is news which affects a large portion of the market. In the example of a global virus threat decreasing the value of the S&P 500 it is both because several companies in the index is in the travel industry or sells to the travel industry and because most companies are dependent on a workforce and consumers which might suffer from disease soon.
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