Just like Wall Street ratings can cause stocks to swing, publicly traded companies are under pressure to meet Wall Street estimates each quarter. When they don't, their stocks can plunge.
Often, if a business says it is increasing its investment to pursue a long-term opportunity, it is punished with a falling stock price. This happened to Meta Platforms (META -1.06%) in its 2024 first-quarter earnings report. The company said it would step up spending on artificial intelligence (AI) and other initiatives, and the stock fell partly on that news.
Conversely, when a company announces a cost-cutting initiative, like layoffs, Wall Street often cheers the move, seeing it as a way to boost profits, even if it makes the business less competitive. For those reasons, business leaders and others are sometimes skeptical of Wall Street's influence.
What's an example of what Wall Street does?
Wall Street does many different things in the financial services industry, but one of the more high-profile events it handles is an IPO. An IPO is the process by which a start-up or privately held company enters the public markets, and companies typically look to Wall Street banks for assistance.
The investment bank's main job is to act as a middleman between the buyer (prospective investors) and the seller (the company going public). To do that, the bank often organizes a road show, where the management team travels the country, pitching various investor groups to sell blocks of its stock. The investment bank also helps to determine a price for the IPO and the number of shares to be sold.
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