In April of 2022, Elon Musk publicly announced his proposal to purchase all of Twitter. The day after the market opened, the stock rose 6%. But how was it possible that an announcement like this could have such an impact on a stock’s rise?

News like this happens every week, and it can often catch investors off guard. That’s why it's crucial to understand the various external factors that can quickly move the price of a stock. In this Hapi article, we explain the most important external news factors that affect stock prices and take a deep dive into the case of Elon Musk and Twitter.

What are some external factors that can influence a stock price?

Certain news about external events indirectly alters a company's fundamentals and influences the supply and demand for its stock on the stock market. Some examples include:

1. Announcements of mergers or acquisitions (M&A)

Mergers, which involve the union of two companies, and acquisitions, when one company buys another, generally increase the value of companies. This happens because the synergies between the two can create greater growth opportunities, diversification, and expansion into new markets.

A recent example of a significant acquisition is Microsoft's purchase of Activision in January 2022. The acquisition deal aimed to expand Microsoft's presence in the gaming world and gain a competitive edge in developing entertainment experiences in the metaverse. This news excited investors, leading to an impressive 25% jump in one day.

2. Investments in stock by large investors

The inclusion of a stock in the portfolio of a major investor can cause a significant rise for two reasons. First, the large size of the purchase leads to a substantial increase in demand for these shares. Second, the preference of a reputable investment fund or well-known personality provides confidence or reassurance to smaller investors, creating a ripple effect.

Recently, Warren Buffett added Nu Bank stock to his portfolio. This startup is a digital bank contributing to a wave of financial inclusion in Latin America. This news sparked interest among many institutional investors to follow suit and invest in this successful startup.

3. Advancements in new products by competitors

The development and market launch of new products by competitors can put competitiveness at risk for other companies in the long run. This leads to a drop in the stock prices of these other companies due to lower expected market share and, consequently, lower earnings.

A well-known example is Apple's product presentations, which usually happen every year. If the company's new devices are innovative and attractive to the public, its stock will rise. Meanwhile, competitors' stocks will fall as investors expect them to lose their competitive edge over time.

4. Regulatory changes in the sector

New regulations can drastically affect or benefit companies in a sector overnight. The legal framework sets the rules of the game for businesses and often determines the success or failure of a sector.

For example, medicinal cannabis businesses in the United States largely depend on the legalization of its use across many states to continue expanding. Time and again, stocks in this sector have experienced sharp fluctuations due to regulatory changes in parts of the US.

If the commercialization of these products is legalized in more places, the market size increases, and with it, the company's expected benefits. This is reflected in a rise in stock demand and higher prices.

5. Economic shocks

A shock is any unexpected event that significantly alters economic activity. A demand shock usually impacts one of the following components of GDP: consumption, investment, government spending, or net exports. On the supply side, it reduces or increases production in an economy. Ultimately, supply and demand are interrelated at a macroeconomic level.

Think of the shock caused by the pandemic. It had economic effects on both sides. On the demand side, investment fell due to uncertainty about the severity of the disease, and consumption dropped to a lesser extent due to reduced household income. On the supply side, production suffered a sharp decline due to mandatory lockdowns and the suspension of economic activity.

All of this significantly influenced stock prices. In general, it led to a mass sell-off that drove prices down. However, stocks in essential goods, telecommuting, or health sectors benefited from this shock.

Where can you find reliable sources for this type of news?

• Yahoo Finance: This is the leading platform for public financial information. It provides market news from various sources, financial statements for each stock, and resources to manage your portfolio. It's ideal for getting started with investing in the US Stock Market.
• Market Watch: A great tool for passionate investors, with more than 16 million visitors monthly. This website provides the latest stock market and business news, along with personal finance information.
• Forbes: The world's leading business and wealth magazine is also a reliable source of detailed news on major companies listed on the US Stock Market.
• Investing.com: This site offers various tools to analyze the market and manage a portfolio, along with the latest financial news and constant updates on the economy.
• Wall Street Journal: A specialized source of stock market and macroeconomic news. Although it covers a wide range of topics, it maintains a business focus.
• Motley Fool: Aims to help people achieve financial freedom through investing. It provides quality financial articles and the latest news on companies with detailed analysis.
• Hapi: Unlike other information sources, Hapi presents news in a simpler, more direct way so that you can quickly learn about the most relevant events of the day and week. With their Instagram stories, you can stay updated on the main factors influencing the US Stock Market and relevant concepts in finance.

Now that we know which news can influence stock prices and where to find reliable information, let’s take a closer look at a real case:

Elon Musk and his bid to acquire Twitter: How did it influence the stock price?

Who is Elon Musk, and why did he want to buy Twitter?

Elon Musk is the co-founder of more than six successful companies, including Tesla, the world’s most valuable car company, and SpaceX, the first private company to offer commercial flights to space. Thanks to his companies, Musk is currently the richest person in the world, with $265 billion.

Esa riqueza le ha permitido cobrar gran relevancia en redes sociales como Twitter y resalta por su originalidad y humor. Sin embargo, esa popularidad también le ha brindado el poder de influir fuertemente en la Bolsa de Valores de EEUU y en los mercados de criptomonedas, cada vez que publica algo relacionado a un activo.

Según Washington Post, el interés de Elon Musk en comprar Twitter provino de su filosofía a favor de la libertad de expresión bajo la etiqueta de free speech maximalist. Como él mismo twitteó en abril: “Twitter se ha convertido en una especie de plaza pública de facto, por lo que es realmente importante que las personas tengan tanto la realidad como la percepción de que pueden hablar libremente dentro de los límites de la ley”.

Muchos analistas sugieren que fueron otros los motivos detrás de esta propuesta de compra. En realidad, esta iniciativa favorecía a Musk, porque su oferta de compra se dio luego de que él ya haya realizado una importante compra de acciones a un precio promedio menor. De este modo, sus acciones subieron también con su anuncio de comprar la totalidad de la empresa.

¿Qué ocurrió con la acción de Twitter después de este anuncio?

Tras la propuesta pública de la compra total de Twitter y la posterior aprobación de esa medida por parte del directorio, la acción incrementó su precio en un 14.68% en una semana. Muchos inversionistas retail de Twitter estuvieron confundidos sobre las consecuencias de esta medida. También llegaron otros inversionistas nuevos listos para coger la ola de crecimiento futuro.

Con el pasar del tiempo, las negociaciones se complicaron cada vez más. La compañía se opuso a cumplir con las condiciones impuestas por Musk para que se concrete el acuerdo, lo que causó un descontento en él.

Posteriormente, en julio, Elon retiró su propuesta, y la acción alcanzó mínimos de 32.64 dólares por acción, 36% por debajo del último máximo. Recientemente, se retomaron las negociaciones y todo indica que ambas partes se están acercando a un acuerdo, con lo cual la acción ha retomado una tendencia al alza.

Así  como la noticia de Elon Musk y la compra de Twitter removieron drásticamente los mercados, existen muchas noticias de factores externos que pueden cambiar la dirección de la Bolsa de Valores.

How to incorporate news into your investment strategy?

There are many external factors that can benefit or negatively impact companies listed on the Stock Market: mergers and acquisitions, investments by major investors, new products, regulatory changes, economic shocks, and more.

With so many elements to consider, it can be overwhelming to keep track of everything. That’s why it's best to study the company you want to invest in thoroughly, check the news periodically, and not worry too much about daily price movements.

Another thing to keep in mind is that when news becomes public, the market has often already priced in the effects of that event. That’s why it can be difficult to capitalize on a news-driven investment opportunity after the fact. The phrase “buy the rumor, sell the news” explains this phenomenon well.

If you want to invest happily and without too many worries, follow Hapi on social media. That way, you'll receive daily updates on the latest financial news from reliable sources in a user-friendly format. And don’t forget to check the blog weekly to learn about the most important concepts for your personal finances.