even a hint of bad news makes stocks fall. Even if its just a rumor or far in the future. Even unrelated stocks are effected. Why does news on the housing market effect Google and cokes price?

News is simply reporting the human affairs of a nation. Those affairs affect the economy. The state of the economy effects business.... and that effects stock prices.

People buy and sell on news, period. Google's outlook will be affected by the housing market as it is indicative of several other markets consumers will have problems with, if they can't meet mortgage obligations or nobody is building new.

It's really the mentality of the herd. While the efficient market theory says that news is digested by the market almost immediately it doesn't really explain why or to what degree. Let me give you a specific and very profitable example I've seen over and over.Before Cisco's last earnings report the stock was trading at a 5 year high. The day before the earnings announcement the stock traded about 5% higher on increased volume. When the earnings report came out I knew that unless it was fantastic (which market and sector conditions seemed against) the stock was going to fall because all the buyers had done their buying. It turns out the earnings were inline with expectations and maybe a cent less on the next quarter's forecast. Needless to say, the stock was down sharply the next day. I bought a couple deep-in-the-money put options to take advantage of this and limit my risk. It all really boils down to an imbalance between supply and demand at any given time. This kind of example is repeated quite often. Just remember to use options to protect yourself.

Stocks are bought and sold based on many factors, including investors perception of the future economy. For example, the housing market affects consumer spending, which is a main driver of the American economy. If you're losing your house, you're not likely to go on a spending binge for new clothes, a car, or a home theatre system. When consumers spend less, corporate profits drop. When corporate profits drop, stock prices go down. Investors sell on bad news in anticipation that corporate profits may go down in the future. The goal is to sell at the top, not after the bad news becomes reality and stock prices are already on the way down.On the other hand, positive news can cause the market to go up because it creates the possibility of higher future profits. The goal is to buy before profits go up and the stock price has already risen, not after it's already happened.

It's all linked to MONEY!