The 6 Major Core Drivers of Stock Price Increases

From the perspective of investment and market microstructure, stock price increases are not driven by the same "force". Different driving types have completely different sustainability, tradability, and risk structures.
Below, I will give you a framework for classifying upward drivers that is commonly used by institutions but rarely systematically understood by retail investors.
I. The 6 Core Driving Types of Stock Price Increases (from "Virtual" to "Real")
Can be understood as:
Emotion → Expectation → Narrative → Capital → Performance → Valuation Re-rating
1️⃣ Emotion-driven Rally
Essence: Sentiment premium
Typical Characteristics
No new substantial information
High volume but vague logic
Keywords:
"Everyone is buying," "Fear of missing out," "Sentiment recovery"
Common Scenarios
Rebound after panic
Technical recovery after a sharp decline
Sudden increase in market risk appetite
Behavioral Characteristics
Rises quickly
High volatility
Prone to V-shaped reversals
Typical Outcome
Gains do not equal value enhancement
Easy to "come fast, go even faster"
📌 Suitable for: Short-term, sentiment traders
📌 Not suitable for: Long-term holding
2️⃣ Expectation-driven
Essence: Pre-pricing of "future changes"
Typical Characteristics
Positive news has not yet occurred
Stock price moves first
Keywords:
"Possible," "Expected," "Projected," "May"
Common Triggers
Interest rate cut expectations
Policy shifts
New products, new businesses, new cycles
Behavioral Characteristics
Rise first, verify later
Prone to "sell on the news"
Risk Points
Expectation fulfillment ≠ Continued stock price increase
Expectations falling short → Significant pullback
📌 Suitable for: Swing trading, event trading
📌 Core Competency: Judging "whether expectations are overestimated"
3️⃣ Narrative-driven
Essence: Market consensus building
Typical Characteristics
Business model storytelling
Highly abstract technology and industry concepts
Keywords:
"Disruption," "Revolution," "New paradigm"
Common Fields
Technology growth stocks
New energy, AI, biotechnology
Behavioral Characteristics
Valuation system is vague
Market prices based on "future imagination"
Danger Signals
Narrative cannot be converted into cash flow
Logic begins to "self-cycle"
📌 Suitable for: Early-stage trend investors
📌 Danger: Taking over at the late stage
4️⃣ Liquidity / Flow-driven
Essence: More money than assets
Typical Characteristics
No strong correlation with fundamentals
Sector-wide collective rise
ETF, passive capital is evident
Common Sources
Loose monetary policy
Inflow of passive index funds
Buybacks, insurance, pension fund allocations
Behavioral Characteristics
Slow but steady
Shallow corrections
Ending Methods
Liquidity tightening
Capital reallocation
📌 Suitable for: Mid-term trends, allocation-type capital
5️⃣ Earnings-driven
Essence: Real cash flow changes
Typical Characteristics
Continuous improvement in revenue, profit, gross margin
Guidance raised
ROE increase
Behavioral Characteristics
Rises slowly
Strong resistance to decline
Easy to "become safer as it rises"
Market Reaction
Initial gains are not large
Later stages prone to forming a Davis double play
📌 Suitable for: Long-term investment, fundamental investment
6️⃣ Valuation Re-rating
Essence: Market re-recognizes the company
Typical Triggers
Business model confirmation
Change in industry position
Decline in risk premium
Typical Performance
PE, PB central axis shifts upward
Not driven by short-term performance
Sustainability
Longest
But occurs the least frequently
📌 This is the true source of "bull stocks"
II. Price Increases in Reality: Almost Always a "Combination of Punches"
Truly major market trends almost never rely on just one driver
Typical Path
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Sentiment recovery
→ Expectation formation
→ Narrative strengthening
→ Capital inflow
→ Performance verification
→ Valuation re-rating
📌 Most people:
Buy at 2️⃣–3️⃣
Sell at 4️⃣
Miss 5️⃣–6️⃣
III. A Key Cognitive Upgrade Point (Very Important)
The "reason" for the increase ≠ The "reason" you should hold
You must clearly answer one sentence:
"Which type of driver is paying me for the money I'm making now?"
Otherwise, you will experience:
Using long-term logic to hold sentiment-driven rallies
Using a short-term mindset to hold performance stocks
Still fantasizing about valuation re-rating after the narrative ends