What Is Stock Performance?

Definition

Stock performance is the measurement of a stock's ability to increase or decrease the wealth of its shareholders. Performance is typically measured by its fluctuation in price. When the stock price increases, the stock shows good performance. Conversely, a decrease in price is a poor performance.

Factors

Many factors affect a stock's performance on the market. The first factor is the overall health of the economy. During economic downturns, many stocks experience a price drop. For example, if the news of economic indicators such as retail sales show a significant decrease from the prior month, stocks typically drop in value. The condition of the stock market is another factor: During a bear market, investors avoid stocks. This decrease in demand naturally drives the price of stocks lower. During a bull market, investors are more aggressive in buying, which drives the stock price upward. The last, and perhaps most important, factor of stock performance is the health of the company issuing the stock. For instance, rumors of a merger between two companies typically drives the stock price higher, whereas poor quarterly earnings compel investors to sell the stock and drive the price lower. Thus, the performance of a stock is often tied to the performance of a company.

Considerations

The daily fluctuations of a stock's market price are not always indicative of its long-term value or potential. For example, a stock may perform poorly when the government releases economic data of an increase in the unemployment rate. However, this general economic news may have no bearing on the specific company's long-term success. Long-term investors are less willing to sell off stock during downturns in the economy or poor financial news, though they do pay close attention to the performance of a company. Likewise, short-term investors are much more sensitive to economic and financial news. Brokers looking to make a quick buck are more likely to sell when the price of stocks jump due to positive news.

Significance

The performance of a stock can shave millions from an investor's portfolio in mere seconds, and trillions of dollars evaporate from the market in poor years. For instance, a 2009 "Business Insider" article reports that America lost an estimated $6.9 trillion in the stock market during 2008. Similarly, many people rely on a stock's performance to assist with their retirement funds. A significant loss of wealth means many workers may postpone retirement and in turn, exacerbate the high unemployment rate.

Warning

Though every investor attempts to predict a stock's performance, unforeseen events spoil the most well-formed predictions. Natural disasters, tech and housing bubbles, and terrorist attacks are a few unexpected events that negatively impact a stock's performance. Both long-term and short-term investors cannot avoid the immediate impacts on the stock performance from such unpredictable events.