Fisher Investments Explains How Stock Prices Are Determined

This video from Fisher Investments examines how stocks are fundamentally forward looking. This means current stock prices reflect investors’ expectations of future corporate earnings and growth.

Millions of investors across the globe attempt to calculate the current fair value of stocks based on projections of companies’ future earnings. The stock market acts as an information-processing machine, reflecting new information, ideas and opinions in stock prices almost instantly. Because investors’ expectations are priced into stocks, markets tend to move on the difference between those expectations and reality.

Fisher Investments believes stocks reflect probable outcomes between 3 and 30 months into the future, depending on market conditions. In bull markets, stocks tend to focus on the longer end of that range to capitalize on long-term growth. In bear markets, however, investors often shrink their outlook to the shorter end of that range as they weigh potential causes and assess the extent of the damage.