What Makes Stocks Go Up?

Updated: May 6, 2026

I get some version of this question constantly: “Jenna, why did my stock drop? The company is doing great.”

It’s one of the most frustrating experiences in investing — you buy a solid business, the fundamentals look good, and the stock falls anyway. Or the opposite: a company misses earnings and the stock goes up. None of it seems to make sense.

After 15 years in this business, I can tell you it always makes sense. You just need to know what to look for.

Here is what actually moves stock prices — and why understanding it changes everything about how you invest.

Earnings: The Primary Driver of Long-Term Stock Prices

A stock is a claim on a company’s future earnings. That is the foundational concept, and everything else flows from it.

When a company earns more than investors expected, the stock goes up. When it earns less, the stock goes down. The size of the move is proportional to the size of the surprise — not the size of the earnings themselves.

I’ve watched this play out hundreds of times. A company like NVIDIA (NVDA) beats analyst estimates by a wide margin and the stock jumps 10% in a day. A different company posts decent earnings but misses estimates by a few cents — and falls 15% in a single session. Same quarter, completely different reactions.

This is why the number to watch is not just earnings — it is earnings relative to expectations.

Revenue growth matters too, but profit margins tell the real story. A company growing revenue at 20% while margins are shrinking is a business in trouble. A company growing revenue at 12% while expanding margins is building something durable. I’d take the second company almost every time.

Track earnings per share (EPS) growth, free cash flow, and operating margin trends. Not just the top-line revenue number that makes headlines.

How Macroeconomic Conditions Move the Entire Market

Individual stock fundamentals explain why one stock outperforms another. Macroeconomic conditions explain why the whole market goes up or down together.

A strong economy — rising GDP, low unemployment, consumers spending — creates the conditions for corporate earnings growth across the board. When businesses are doing well, equity valuations rise with them.

A contracting economy does the opposite. Recessions compress corporate earnings, and the market discounts that compression before it shows up in reported numbers. This is why the stock market typically peaks before a recession officially begins and bottoms before it officially ends.

The four macro variables I watch most closely: GDP growth rate, unemployment rate, inflation (CPI and PCE), and Federal Reserve monetary policy. Get a read on all four and you have a reasonable picture of the market’s direction.

Why Interest Rates Are the Most Underappreciated Factor

This is the one that trips up the most investors, including experienced ones.

Most people understand the basic version: higher interest rates make borrowing more expensive, which slows business growth. Companies that rely on cheap debt — utilities, REITs, highly leveraged growth companies — get hit hardest. That part is straightforward.

What most people miss is the second channel. Stock valuations are based on the present value of future earnings. To calculate that present value, you apply a discount rate — typically tied to the 10-year Treasury yield.

When rates rise, that discount rate rises. A higher discount rate mechanically reduces what future earnings are worth today. This is why high-growth technology stocks fall hardest during rate-hiking cycles, even when their own businesses are performing well. The business didn’t change. The math changed.

When the Federal Reserve raised the federal funds rate from near zero to over 5% between 2022 and 2023, the Nasdaq Composite fell more than 30% at its trough. That wasn’t a coincidence or a panic. It was discounted cash flow math playing out in real time across millions of portfolios.

Experience Transparency: The investors I’ve watched get blindsided most consistently are the ones who understand company fundamentals but ignore the macro environment. They buy a great business at a reasonable valuation and then watch it fall 25% because the Federal Reserve shifted policy. The company did nothing wrong. The interest rate environment changed what that company’s future earnings are worth today. I’ve had to have that conversation more times than I’d like. Once you understand the relationship between rates and valuations, you stop being confused by those moves — and you start anticipating them.

Supply and Demand: The Mechanism Behind Every Price Move

Every factor that drives stock prices — earnings, economic data, interest rates, news — works through the same mechanism: supply and demand.

More buyers than sellers, price goes up. More sellers than buyers, price goes down. Simple as that.

What’s less obvious is how sentiment can override fundamentals in the short term. I’ve seen stocks that were genuinely undervalued by any reasonable metric keep falling for months because selling pressure just wouldn’t let up. And I’ve seen obviously overvalued stocks keep climbing because the momentum and enthusiasm kept new buyers coming in.

Fundamentals tell you what a stock is worth. Supply and demand tell you what it’s trading at right now. The gap between those two numbers — that’s where the opportunities are. And the traps.

How Analyst Ratings and Institutional Flows Move Stock Prices

When Goldman Sachs or Morgan Stanley upgrades a stock from Neutral to Buy, that stock often moves 3 to 8% the same day.

It’s not because retail investors are following the call. It’s because institutional investors — mutual funds, pension funds, hedge funds — are often required or incentivized to own stocks with Buy ratings from major research desks. The upgrade triggers institutional buying, and that buying moves the price. The analyst didn’t predict the move. The analyst caused it.

This is worth understanding because it means analyst ratings are a real market force regardless of whether any individual analyst’s track record is actually good.

Institutional ownership data is publicly available through 13F filings with the SEC. When multiple large institutions are quietly accumulating a position at the same time, it creates sustained buying pressure that can push a stock significantly higher — often before the retail world catches on.

News Events and Corporate Catalysts

Specific events create specific price moves, and most of them are predictable in structure if not in timing.

Earnings reports are the most frequent catalyst. Every public company reports quarterly, and the market’s reaction is the most direct feedback loop between business performance and stock price.

Mergers and acquisitions typically push the target company’s stock toward the acquisition price and pull the acquirer’s stock lower if investors think they overpaid.

Regulatory approvals — especially in pharmaceuticals and biotech — can double or cut a stock in half in a single session. New product launches, government contracts, and CEO changes all create measurable reactions.

Federal Reserve decisions, inflation reports, and jobs data move the entire market at once. Those releases get watched closely for good reason.

The discipline I’ve developed over the years: separate events that actually change the long-term thesis from events that just create short-term noise. A one-day drop on a weak jobs report tells you nothing about whether a specific well-run company is still a good long-term hold. A pattern of consecutive earnings misses with deteriorating margins tells you everything.

Sentiment, Momentum, and Market Psychology

Markets are not purely rational. Anyone who’s lived through a full cycle knows this.

Investor sentiment can push stocks far above or below their fundamental value for extended periods. The dot-com bubble of the late 1990s and the meme stock frenzy of 2021 are the clearest recent examples — prices completely disconnected from any reasonable earnings-based valuation, driven entirely by enthusiasm and momentum.

Momentum is self-reinforcing. Rising stocks attract more buyers, which pushes them higher. Falling stocks attract more sellers, which pushes them lower. Trends persist longer than pure fundamentals would predict, in both directions.

The way I use this: I pay attention to where we are in the sentiment cycle. The best buying opportunities I’ve seen in my career came when sentiment was deeply negative and quality businesses were being sold off indiscriminately. The worst decisions — mine and others’ — came from buying into euphoric markets where everyone was convinced prices only went up.

Wall Street Reality Check: Most retail investors spend their time trying to predict what a stock will do next week. Professional investors spend their time analyzing whether the long-term earnings trajectory of a business justifies the current valuation. Those are fundamentally different activities, and they produce fundamentally different results. The market will always be volatile in the short term. Over five and ten-year periods, stock prices follow earnings almost perfectly. That’s the relationship worth building your investing around.

What This Means for How You Invest

All of this is useful context. Here’s how I actually apply it.

I focus on earnings trajectory first. Accelerating revenue growth, expanding margins, and a durable competitive advantage in a growing market — that combination is the foundation of a long-term winner. Right now, companies like Arista Networks (ANET), Palantir Technologies (PLTR), and Constellation Energy (CEG) are examples where the fundamental earnings story is strong enough to justify serious attention.

I watch the macro environment constantly. When the Federal Reserve is hiking rates, I know growth stocks face valuation headwinds regardless of how their businesses are actually performing. When rates are falling, the tailwind is real. That awareness isn’t market timing — it’s just not ignoring the single biggest variable affecting valuations across the entire market.

I ignore most short-term noise. A stock that drops 4% on a weak market day and recovers the following week told me nothing useful. I don’t trade on it. I don’t panic on it.

For a quantitative layer on top of this framework, I’ve found the Power Gauge Report from Marc Chaikin genuinely useful. It uses 20 market factors — earnings quality, institutional activity, price momentum — to rate stocks Bullish, Neutral, or Bearish. It’s a solid tool for filtering a large universe of stocks down to the ones where multiple signals are aligned at once.

Bottom Line

Stock prices aren’t random. They’re the output of earnings expectations, macro conditions, interest rates, institutional flows, and sentiment — all interacting simultaneously.

Once you understand those drivers, market moves stop feeling like noise and start making sense. That shift in perspective is, in my experience, what separates investors who build real wealth from the ones who are perpetually confused by their own portfolios.

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Updated: May 6, 2026. This article has been fully rewritten with current market context and reflects Jenna Lofton’s 15+ years of experience in financial markets.

Disclaimer: Nothing in this article constitutes financial or investment advice. All investing involves risk, including the possible loss of principal. Individual stocks mentioned are for illustrative purposes only and do not constitute a recommendation to buy or sell. Always conduct your own research and consult a licensed financial advisor before making investment decisions.