Reviewed by Sep 28, 2020| Updated on
What is a Driver?
A driver, in the context of Economics, is a factor which affects another entity's activity in a material way. Drivers affect changes in their targets and occur at many economic and stock-market levels. Macro drivers are causing changes at the general level of the market. At the enterprise level, micro drivers cause the transition.
At one time, macro drivers influence large areas of the market and often include large, widespread events like wars, trade agreements, or other geopolitical issues.
A micro driver is something that may impact either a company's earnings or its stock price in a material way. Each company has its own distinctive drivers, though some of the most common drivers include releasing new products/services, new financing, commodity or resource prices, competitor activities, legislation, regulation, and diversification of products versus competitors.
Stock drivers do not have pure quantitative measurement units but are of a more qualitative nature.
Understanding the Driver
Macro drivers are a huge area of interest for fund firms running top-down methods since they are worried about what the global investment themes will be over their time scale. Fundamental investors may be more concerned with micro-drivers influencing the profits and stock prices of the companies they are analysing.
The greatest fundamental investors will religiously identify some three-four key drivers for the stocks they own and follow the status of those drivers, knowing they hold the key to the stock's overall performance.
Examples of Drivers
An example of a micro driver would be if a business, such as Coca-Cola purchased a big up-and-coming beverage maker who stole large parts of the total market share of Coca-Cola beverages. This can have a positive effect on Coca-Cola stock and upward influence on the stock price. Broad margins are a great driver of company performance for a retailer, such as Albertson's, although relative market share is less important.