The stock market is a kind of matchmaker that pairs stock sellers with interested buyers each day it’s open. The sellers can be companies that are offering their shares, like through an initial public offering (IPO), or existing shareholders looking to resell them for cash. The buyers can be individuals seeking to grow their wealth, or even pension funds and other large institutions that are looking for a stable way to diversify their assets.
Each share represents a fraction of ownership in a company, which may be small or large, private or publicly traded. As a result, a share’s price can rise or fall based on demand from new investors, supply of current shares from those looking to sell and various other factors. For example, if a company’s profits are higher than expected, it might make investors want to buy more shares. On the other hand, a product recall or a poor economic outlook might prompt some investors to dump their shares.
Most people invest in stocks for a variety of reasons. Some are after dividends, while others are hoping the price of a particular stock will rise to a level at which they can sell it for a profit. And some are simply looking to have a voice in how a company is run, as each shareholder gets one vote at shareholder meetings based on the number of shares they own. In general, however, major market trends and economic news often influence most or all stocks in similar ways. That’s why business reports often reference broad market indexes such as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite Index.