The document discusses the relationship between the stock market and the macroeconomy. It explains that the stock market and the overall economy influence each other in a two-way relationship. When stock prices rise, household wealth increases, leading consumers to spend more. This boosts aggregate demand and GDP. Conversely, a stronger economy leads to higher corporate profits, boosting stock prices. Shocks that impact either the stock market or the macroeconomy can reverberate onto the other through this relationship.
This document discusses various stock market indicators that can help predict events within the stock market. It describes several major stock market indexes including the Dow Jones Industrial Average (DJIA), the Standard & Poor's 500 index, and the NASDAQ Composite index. It also discusses other indicators such as economic indicators, the Federal Reserve, mergers and acquisitions, and how these can impact stock prices and the overall economy.
Mercer Capital's Bank Watch | April 2020 | Ernest Hemingway, Albert Camus, an...Mercer Capital
This document summarizes an article analyzing potential credit risk issues for banks due to the COVID-19 pandemic and economic downturn. It begins by noting that while current asset quality metrics don't yet show issues, bank stock prices have fallen due to expected problems. The article then discusses using the 2008 financial crisis as a reference, noting loan growth was more balanced this time. Historical loss rates are compared to today. Areas of potential concern include commercial and industrial loans and commercial real estate loans to hard-hit industries like hotels and retail. The impacts on rural vs. metropolitan banks are also considered. Rating agency data on at-risk loan categories is presented.
Heinz Case Study: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES sadia butt
H.J. Heinz faced difficulties in estimating its weighted average cost of capital (WACC) due to stock price fluctuations, low interest rates, and uncertainty about consumer risk appetite. This made it hard to accurately evaluate new projects. Specifically, Heinz's stock price fell from $47 to $34 in 2008 but returned to $47 by 2010. Additionally, interest rates remained low, and it was unclear how this affected consumer risk tolerance. As a result, the company struggled to settle on an appropriate WACC value.
- Real interest rates in the US are currently at their most negative level in almost three decades, which is an important development that should not be ignored by investors.
- Historically, periods of deeply negative real rates have typically been followed by improvements in leading economic indicators and increased spending, consumption, and demand for assets by both consumers and businesses.
- Based on historical relationships, the current negative real rate environment suggests that US economic prospects and equity markets may find increased support and possibly a sustained rally in the coming year.
The document discusses concerns about potential future inflation in the US economy. While current official inflation measures are relatively low, some argue these measures underestimate true inflation. There are also signs that raw material costs are rising, which could eventually flow through to higher consumer prices. The Federal Reserve's stimulus efforts are intended to boost inflation, with some insiders suggesting a target of 4-6% inflation for a couple years. If high inflation returns, it could pose risks to investors not prepared for that environment.
The document summarizes the outlook for markets in 2009. It believes the recession will persist through 2009 with a weak recovery. Government stimulus plans aim to boost spending but the effects may be delayed. The Federal Reserve has increased money supply but must remove excess cash to avoid inflation. Consumers are saving more due to debt and falling asset values, which may slow growth but support bond prices. Global trade and capital flows are also slowing. The outlook calls for a challenging year with opportunities in quality companies and bonds offering higher yields. Flexibility will be needed to respond to changing opportunities and risks.
This quarterly investment advisory newsletter provides a summary of the volatile market conditions in Q3 2011. Key points include:
- Global stock markets experienced steep declines, with the Dow losing 12.09% and Russell 2000 falling 22.15% for the quarter.
- Concerns about European sovereign debt crisis and potential global economic slowdown drove the volatility.
- The US economy grew slightly faster than expected in Q2 but unemployment remained high at 9.1%.
- The Fed announced a plan to sell short-term bonds and buy longer-term bonds to boost the economy.
This document discusses various stock market indicators that can help predict events within the stock market. It describes several major stock market indexes including the Dow Jones Industrial Average (DJIA), the Standard & Poor's 500 index, and the NASDAQ Composite index. It also discusses other indicators such as economic indicators, the Federal Reserve, mergers and acquisitions, and how these can impact stock prices and the overall economy.
Mercer Capital's Bank Watch | April 2020 | Ernest Hemingway, Albert Camus, an...Mercer Capital
This document summarizes an article analyzing potential credit risk issues for banks due to the COVID-19 pandemic and economic downturn. It begins by noting that while current asset quality metrics don't yet show issues, bank stock prices have fallen due to expected problems. The article then discusses using the 2008 financial crisis as a reference, noting loan growth was more balanced this time. Historical loss rates are compared to today. Areas of potential concern include commercial and industrial loans and commercial real estate loans to hard-hit industries like hotels and retail. The impacts on rural vs. metropolitan banks are also considered. Rating agency data on at-risk loan categories is presented.
Heinz Case Study: ESTIMATING THE COST OF CAPITAL IN UNCERTAIN TIMES sadia butt
H.J. Heinz faced difficulties in estimating its weighted average cost of capital (WACC) due to stock price fluctuations, low interest rates, and uncertainty about consumer risk appetite. This made it hard to accurately evaluate new projects. Specifically, Heinz's stock price fell from $47 to $34 in 2008 but returned to $47 by 2010. Additionally, interest rates remained low, and it was unclear how this affected consumer risk tolerance. As a result, the company struggled to settle on an appropriate WACC value.
- Real interest rates in the US are currently at their most negative level in almost three decades, which is an important development that should not be ignored by investors.
- Historically, periods of deeply negative real rates have typically been followed by improvements in leading economic indicators and increased spending, consumption, and demand for assets by both consumers and businesses.
- Based on historical relationships, the current negative real rate environment suggests that US economic prospects and equity markets may find increased support and possibly a sustained rally in the coming year.
The document discusses concerns about potential future inflation in the US economy. While current official inflation measures are relatively low, some argue these measures underestimate true inflation. There are also signs that raw material costs are rising, which could eventually flow through to higher consumer prices. The Federal Reserve's stimulus efforts are intended to boost inflation, with some insiders suggesting a target of 4-6% inflation for a couple years. If high inflation returns, it could pose risks to investors not prepared for that environment.
The document summarizes the outlook for markets in 2009. It believes the recession will persist through 2009 with a weak recovery. Government stimulus plans aim to boost spending but the effects may be delayed. The Federal Reserve has increased money supply but must remove excess cash to avoid inflation. Consumers are saving more due to debt and falling asset values, which may slow growth but support bond prices. Global trade and capital flows are also slowing. The outlook calls for a challenging year with opportunities in quality companies and bonds offering higher yields. Flexibility will be needed to respond to changing opportunities and risks.
This quarterly investment advisory newsletter provides a summary of the volatile market conditions in Q3 2011. Key points include:
- Global stock markets experienced steep declines, with the Dow losing 12.09% and Russell 2000 falling 22.15% for the quarter.
- Concerns about European sovereign debt crisis and potential global economic slowdown drove the volatility.
- The US economy grew slightly faster than expected in Q2 but unemployment remained high at 9.1%.
- The Fed announced a plan to sell short-term bonds and buy longer-term bonds to boost the economy.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
The stock market boom of the late 1990s had a large impact on the US economy. The annual growth rate of GDP would have been around 2.8% instead of the reported 4.5% without the stock market boom. The boom added approximately $2.5 trillion per year to household wealth, fueling more consumption and investment. This additional growth accounts for the unusually strong economic expansion during that period. The economy may have avoided recession in 2001-2002 without the boom and subsequent market correction.
Charting the Financial Crisis: A Narrative eBookShavondaBrandon
The global financial crisis of 2007-2009 and subsequent Great Recession constituted the worst shocks to the United States economy in generations. Books have been and will be written about the housing bubble and bust, the financial panic that followed, the economic devastation that resulted, and the steps that various arms of the U.S. and foreign governments took to prevent the Great Depression 2.0. But the story can also be told graphically, as these charts aim to do.
What comes quickly into focus is that as the crisis intensified, so did the government’s response. Although the seeds of the harrowing events of 2007-2009 were sown over decades, and the U.S. government was initially slow to act, the combined efforts of the Federal Reserve, Treasury Department, and other agencies were ultimately forceful, flexible, and effective. Federal regulators greatly expanded their crisis management toolkit as the damage unfolded, moving from traditional and domestic measures to actions that were innovative and sometimes even international in reach. As panic spread, so too did their efforts broaden to quell it. In the end, the government was able to stabilize the system, re-start key financial markets, and limit the extent of the harm to the economy.
No collection of charts, even as extensive as this, can convey all the complexities and details of the crisis and the government’s interventions. But these figures capture the essential features of one of the worst episodes in American economic history and the ultimately successful, even if politically unpopular, government response.
The stock market boom of the late 1990s had a large impact on the US economy. Estimates show that without the boom, economic growth would not have looked unusually high and the unemployment rate would have been higher around 5.5% rather than 4%. The boom added approximately $2.5 trillion annually to the economy through increased wealth, consumption, and investment, accounting for over 1.5% of annual GDP growth.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
- WRHE had a poor third quarter, declining 3.8% net due to underperformance of services stocks as hurricanes and oil dominated the market.
- Services stocks are at extremely low valuations with high fear levels baked in, but fundamentals remain strong with stable credit markets, employment, and liquidity.
- The US economy remains flexible and services-led, driven by technology and finance, and will manage through hurricane impacts despite perceptions that it is finished.
- WRHE believes conditions are at extremes and change is likely, and that services stocks will reassert leadership and "catch up" with earnings growth when the market refocuses on fundamentals.
- October proved to be a positive month for global markets, with the Canadian S&P/TSX and U.S. S&P500 seeing impressive year-to-date returns. Investor sentiment continued to improve from the lows seen in the spring.
- Factors contributing to the improved outlook in October included the anticipated second round of U.S. quantitative easing, strong second quarter corporate earnings, and the results of the U.S. midterm elections maintaining political gridlock.
- The materials and information technology sectors performed strongest for the Canadian market in October, driven by gains in commodity prices and Research in Motion's new product announcement respectively.
The document summarizes a book that examines how Federal Reserve Chairman Alan Greenspan's public speeches moved markets through his use of certain words and phrases that expressed views on topics like the economy, inflation, and financial stability. It discusses words Greenspan used that lifted or sank markets, including discussions of issues like an "exceptional" economy, controlling inflation, tight labor markets, and financial contagion across borders.
The US dollar may be bottoming based on several factors:
1) Valuation measures like the Big Mac Index and OECD measures imply the dollar is undervalued by 30-35%
2) Increases in US oil and gas production from shale could reduce US imports and improve the trade balance by a third
3) A turnaround in US economic confidence and growth could support a rise in the dollar through upward revisions to interest rate expectations
3 Jan 2009: a bottom in breakevens, commodities, and global yields?Laeeth Isharc
The response of the authorities has been without precedent - the US has a new president, and perhaps confidence in the new administration may stave off the worst consequences of the epidemic contagion of fear - for now, at least. It is certain that for the time being we shall avoid the 29-33 collapse that was associated with every sovereign issuer in Europe except Britain, and much of Latin America and Asia defaulting as well as large numbers of banks in the US (in the days before deposit insurance).
1) Macroeconomics investigates relationships between different economic sectors and the effects of changes in variables like consumption, investment, government spending, and net exports. Its goals are full employment, price stability, and economic growth.
2) Inflation is defined as a sustained rise in the general price level. It redistributes purchasing power arbitrarily and distorts price signals. The real interest rate is the nominal rate minus the inflation rate.
3) Economic growth is measured by the annual percentage change in real GDP. Strong growth generates employment while avoiding inflation.
WHAT IS RECESSION - A SMALL UNDERSTANDING / MEANING Amit Jhunjhunwala
This document discusses recessions and market economics. It defines a recession as the economy shrinking for two consecutive quarters with decreasing GDP. It explains that a recession occurs when there is unwillingness to buy, leading industries like airlines and hotels to cut costs through layoffs and salary reductions. This decreases demand for other goods and can lead the economy into a depression if the recession lasts over 6 months. While developing economies like India may see slowing growth, most developed economies are currently in a recession with negative GDP growth rates. Ultimately, a recession stems from both market economics and a state of mind where fear decreases spending.
The presentation investigates whether the Federal Reserve can possibly manage asset bubbles (real estate, stocks) in addition to managing its primary goals (inflation, sustainable growth).
"Show me the incentive and I'll show you the outcome" – Veripath Farmland Funds Q4 Investor Letter: Investing in a World of Financial Repression, Negative Real Rates, Valuation “Challenges” and Inflationary Forces.
Do G7 governments have an incentive to attempt to keep inflation higher for longer and real rates lower for longer? Negative real rates across a broad spectrum of credit assets are a graphic sign that we inhabit a world of financial repression orchestrated by central banks at the formal/informal behest of sovereign borrowers. In a normally functioning market, lenders do not provide capital to borrowers for negative yields – i.e., they do not pay for the privilege of lending. It goes without saying we are not in a normally functioning market.
The document defines recession as when a country's GDP declines for two consecutive quarters, indicating the economy is shrinking. Recessions can occur due to overproduction exceeding consumption or a loss of confidence by consumers and producers that causes reduced spending and demand. Governments try to counter recessions through fiscal policies like tax cuts and increased spending, and monetary policies where central banks lower interest rates and adjust money supply to boost demand and stimulate the economy.
Is the US dollar set for a correction as the year draws to a close?5Hantec Markets
Well, the bond markets certainly called the Fed decision pretty much spot on, in that there was very little volatility on the FOMC rates announcement. However, could it be that it was the euphoric reaction from the equity markets that was the wrong call?
- Emerging markets have experienced weaker economic growth compared to developed markets in 2013.
- Emerging market equities have significantly underperformed developed market equities since 2010, with the underperformance accumulating prior to recent tapering talk.
- Within emerging markets, BRIC countries like Brazil, Russia, India, and China have particularly underperformed the broader emerging market universe.
The document contains summaries of macroeconomic commentary from 11 letters to investors between 2005-2008. Key points include:
1) Unprecedented debt levels in Western economies could greatly exacerbate economic downturns. Slow growth or debt reduction could hurt asset returns while inflation may help commodities.
2) A potential deflationary scenario could emerge if a bear market in inflated assets like housing triggers deleveraging, rising risk premiums, and falling wealth/spending. However, the Fed chairman at the time was seen as able to prevent this.
3) Sustainable growth requires a shift away from consumption and debt towards domestic demand and productive capacity in Asia. The current model relies on unsustainable credit growth
- The document discusses asset price bubbles, specifically examining whether there is a housing price bubble in Sydney, Australia. It provides context on asset bubbles and the damage caused by credit-driven bubbles.
- Data shows that house prices in Sydney have increased 18.89% in the past year, significantly outpacing wage growth and GDP growth. Using definitions presented, it would be difficult to argue Sydney is not experiencing a housing bubble.
- Factors driving the bubble include strong investor demand encouraged by low interest rates, historically low bond yields, and generous tax concessions for property investors like negative gearing.
The document discusses the recent fall in the Indian stock market. It provides 3 key reasons for the decline:
1) Negative signals from within India like high interest rates and economic slowdown.
2) Global market turmoil from the European and US debt crisis causing a decline in US stocks that spread worldwide.
3) Concerns around continued high unemployment and lack of immediate financial recovery in the US sparking fears of a recession.
The stock market indices across sectors like banking, infrastructure, IT, and healthcare all declined substantially over the past week.
Stock market and the economy ppt slidesRafik Algeria
The document discusses the relationship between the stock market and economic activity. It begins by introducing the topic and explaining how firms raise funds through debt and equity financing. It then defines what a stock market is, how stocks are traded, and how stock prices are determined by supply and demand. Several factors that can influence stock prices are explained, including economic conditions, firm-specific factors, and market factors. The relationship between the stock market and broader economy is explored, specifically how changes in the stock market can impact aggregate demand and economic growth through wealth and investment effects, and how economic conditions can in turn impact stock prices and investor sentiment. The role of the Federal Reserve in responding to stock market fluctuations is also summarized.
Signs of inflation will raise the stakes for the Fed’s policy communications. Favorable conditions for leveraged strategies could reverse quickly. Reasonable valuations and the Fed’s policy goals continue to support risk assets.
The stock market boom of the late 1990s had a large impact on the US economy. The annual growth rate of GDP would have been around 2.8% instead of the reported 4.5% without the stock market boom. The boom added approximately $2.5 trillion per year to household wealth, fueling more consumption and investment. This additional growth accounts for the unusually strong economic expansion during that period. The economy may have avoided recession in 2001-2002 without the boom and subsequent market correction.
Charting the Financial Crisis: A Narrative eBookShavondaBrandon
The global financial crisis of 2007-2009 and subsequent Great Recession constituted the worst shocks to the United States economy in generations. Books have been and will be written about the housing bubble and bust, the financial panic that followed, the economic devastation that resulted, and the steps that various arms of the U.S. and foreign governments took to prevent the Great Depression 2.0. But the story can also be told graphically, as these charts aim to do.
What comes quickly into focus is that as the crisis intensified, so did the government’s response. Although the seeds of the harrowing events of 2007-2009 were sown over decades, and the U.S. government was initially slow to act, the combined efforts of the Federal Reserve, Treasury Department, and other agencies were ultimately forceful, flexible, and effective. Federal regulators greatly expanded their crisis management toolkit as the damage unfolded, moving from traditional and domestic measures to actions that were innovative and sometimes even international in reach. As panic spread, so too did their efforts broaden to quell it. In the end, the government was able to stabilize the system, re-start key financial markets, and limit the extent of the harm to the economy.
No collection of charts, even as extensive as this, can convey all the complexities and details of the crisis and the government’s interventions. But these figures capture the essential features of one of the worst episodes in American economic history and the ultimately successful, even if politically unpopular, government response.
The stock market boom of the late 1990s had a large impact on the US economy. Estimates show that without the boom, economic growth would not have looked unusually high and the unemployment rate would have been higher around 5.5% rather than 4%. The boom added approximately $2.5 trillion annually to the economy through increased wealth, consumption, and investment, accounting for over 1.5% of annual GDP growth.
No bubble trouble; stocks are still reasonably priced. This credit cycle has unique characteristics that continue to make high-yield bonds attractive. Interest-rate volatility poses greater risk than higher rates themselves.
- WRHE had a poor third quarter, declining 3.8% net due to underperformance of services stocks as hurricanes and oil dominated the market.
- Services stocks are at extremely low valuations with high fear levels baked in, but fundamentals remain strong with stable credit markets, employment, and liquidity.
- The US economy remains flexible and services-led, driven by technology and finance, and will manage through hurricane impacts despite perceptions that it is finished.
- WRHE believes conditions are at extremes and change is likely, and that services stocks will reassert leadership and "catch up" with earnings growth when the market refocuses on fundamentals.
- October proved to be a positive month for global markets, with the Canadian S&P/TSX and U.S. S&P500 seeing impressive year-to-date returns. Investor sentiment continued to improve from the lows seen in the spring.
- Factors contributing to the improved outlook in October included the anticipated second round of U.S. quantitative easing, strong second quarter corporate earnings, and the results of the U.S. midterm elections maintaining political gridlock.
- The materials and information technology sectors performed strongest for the Canadian market in October, driven by gains in commodity prices and Research in Motion's new product announcement respectively.
The document summarizes a book that examines how Federal Reserve Chairman Alan Greenspan's public speeches moved markets through his use of certain words and phrases that expressed views on topics like the economy, inflation, and financial stability. It discusses words Greenspan used that lifted or sank markets, including discussions of issues like an "exceptional" economy, controlling inflation, tight labor markets, and financial contagion across borders.
The US dollar may be bottoming based on several factors:
1) Valuation measures like the Big Mac Index and OECD measures imply the dollar is undervalued by 30-35%
2) Increases in US oil and gas production from shale could reduce US imports and improve the trade balance by a third
3) A turnaround in US economic confidence and growth could support a rise in the dollar through upward revisions to interest rate expectations
3 Jan 2009: a bottom in breakevens, commodities, and global yields?Laeeth Isharc
The response of the authorities has been without precedent - the US has a new president, and perhaps confidence in the new administration may stave off the worst consequences of the epidemic contagion of fear - for now, at least. It is certain that for the time being we shall avoid the 29-33 collapse that was associated with every sovereign issuer in Europe except Britain, and much of Latin America and Asia defaulting as well as large numbers of banks in the US (in the days before deposit insurance).
1) Macroeconomics investigates relationships between different economic sectors and the effects of changes in variables like consumption, investment, government spending, and net exports. Its goals are full employment, price stability, and economic growth.
2) Inflation is defined as a sustained rise in the general price level. It redistributes purchasing power arbitrarily and distorts price signals. The real interest rate is the nominal rate minus the inflation rate.
3) Economic growth is measured by the annual percentage change in real GDP. Strong growth generates employment while avoiding inflation.
WHAT IS RECESSION - A SMALL UNDERSTANDING / MEANING Amit Jhunjhunwala
This document discusses recessions and market economics. It defines a recession as the economy shrinking for two consecutive quarters with decreasing GDP. It explains that a recession occurs when there is unwillingness to buy, leading industries like airlines and hotels to cut costs through layoffs and salary reductions. This decreases demand for other goods and can lead the economy into a depression if the recession lasts over 6 months. While developing economies like India may see slowing growth, most developed economies are currently in a recession with negative GDP growth rates. Ultimately, a recession stems from both market economics and a state of mind where fear decreases spending.
The presentation investigates whether the Federal Reserve can possibly manage asset bubbles (real estate, stocks) in addition to managing its primary goals (inflation, sustainable growth).
"Show me the incentive and I'll show you the outcome" – Veripath Farmland Funds Q4 Investor Letter: Investing in a World of Financial Repression, Negative Real Rates, Valuation “Challenges” and Inflationary Forces.
Do G7 governments have an incentive to attempt to keep inflation higher for longer and real rates lower for longer? Negative real rates across a broad spectrum of credit assets are a graphic sign that we inhabit a world of financial repression orchestrated by central banks at the formal/informal behest of sovereign borrowers. In a normally functioning market, lenders do not provide capital to borrowers for negative yields – i.e., they do not pay for the privilege of lending. It goes without saying we are not in a normally functioning market.
The document defines recession as when a country's GDP declines for two consecutive quarters, indicating the economy is shrinking. Recessions can occur due to overproduction exceeding consumption or a loss of confidence by consumers and producers that causes reduced spending and demand. Governments try to counter recessions through fiscal policies like tax cuts and increased spending, and monetary policies where central banks lower interest rates and adjust money supply to boost demand and stimulate the economy.
Is the US dollar set for a correction as the year draws to a close?5Hantec Markets
Well, the bond markets certainly called the Fed decision pretty much spot on, in that there was very little volatility on the FOMC rates announcement. However, could it be that it was the euphoric reaction from the equity markets that was the wrong call?
- Emerging markets have experienced weaker economic growth compared to developed markets in 2013.
- Emerging market equities have significantly underperformed developed market equities since 2010, with the underperformance accumulating prior to recent tapering talk.
- Within emerging markets, BRIC countries like Brazil, Russia, India, and China have particularly underperformed the broader emerging market universe.
The document contains summaries of macroeconomic commentary from 11 letters to investors between 2005-2008. Key points include:
1) Unprecedented debt levels in Western economies could greatly exacerbate economic downturns. Slow growth or debt reduction could hurt asset returns while inflation may help commodities.
2) A potential deflationary scenario could emerge if a bear market in inflated assets like housing triggers deleveraging, rising risk premiums, and falling wealth/spending. However, the Fed chairman at the time was seen as able to prevent this.
3) Sustainable growth requires a shift away from consumption and debt towards domestic demand and productive capacity in Asia. The current model relies on unsustainable credit growth
- The document discusses asset price bubbles, specifically examining whether there is a housing price bubble in Sydney, Australia. It provides context on asset bubbles and the damage caused by credit-driven bubbles.
- Data shows that house prices in Sydney have increased 18.89% in the past year, significantly outpacing wage growth and GDP growth. Using definitions presented, it would be difficult to argue Sydney is not experiencing a housing bubble.
- Factors driving the bubble include strong investor demand encouraged by low interest rates, historically low bond yields, and generous tax concessions for property investors like negative gearing.
The document discusses the recent fall in the Indian stock market. It provides 3 key reasons for the decline:
1) Negative signals from within India like high interest rates and economic slowdown.
2) Global market turmoil from the European and US debt crisis causing a decline in US stocks that spread worldwide.
3) Concerns around continued high unemployment and lack of immediate financial recovery in the US sparking fears of a recession.
The stock market indices across sectors like banking, infrastructure, IT, and healthcare all declined substantially over the past week.
Stock market and the economy ppt slidesRafik Algeria
The document discusses the relationship between the stock market and economic activity. It begins by introducing the topic and explaining how firms raise funds through debt and equity financing. It then defines what a stock market is, how stocks are traded, and how stock prices are determined by supply and demand. Several factors that can influence stock prices are explained, including economic conditions, firm-specific factors, and market factors. The relationship between the stock market and broader economy is explored, specifically how changes in the stock market can impact aggregate demand and economic growth through wealth and investment effects, and how economic conditions can in turn impact stock prices and investor sentiment. The role of the Federal Reserve in responding to stock market fluctuations is also summarized.
The document provides an introduction to stock markets and investing. It discusses key concepts such as stocks, bonds, indexes, market orders, short selling, and margin trading. It also outlines different market sectors including defensive sectors like utilities and cyclical sectors that are more sensitive to economic changes. Finally, it introduces the LHA Stock Market Game, where students will each receive $100,000 to invest and trade stocks against their classmates.
The document discusses the stock market and factors that influence stock prices. It provides information on:
1) How companies issue stock to raise funds and people buy shares to be part owners and receive dividends.
2) Long-term stock market behavior follows bull and bear markets and stock returns generally outpace other assets over the long run.
3) Stock prices serve as a barometer of economic sentiment and expectations for an economy's performance can become detached from reality in speculative bubbles.
So how do you value the share price of stock for a given company? In other words, what is the intrinsic value of a given stock? Generally speaking, a stock is valued based on the company’s current financial state and what the market believes the company’s future financial state will look like. https://carnick.com/
Tobin's q theory suggests that the ratio of a firm's market value to replacement cost of capital (q) indicates whether a firm should invest. If q>1, the market values capital more than its cost, so firms should invest. However, investment does not immediately adjust to changes in q, as it takes time to plan, acquire assets, and install capital. While stock prices may accurately value firms relative to each other, overall market levels can depart from fundamentals through bubbles. Surveys find that firms cite expected demand, profitability, and availability of internal funds as more important determinants of investment than q or cost of capital.
The document provides a weekly market review covering the period of May 8, 2015. It summarizes that in the US, stocks ended higher for the week despite falling earlier, in response to a positive jobs report on Friday. International markets also closed slightly higher. Treasury bond yields increased to five-month highs. Commodity indices were mixed for the week.
The 2010 Flash Crash saw the Dow Jones Industrial Average fall over 600 points before quickly recovering. The crash was caused by a combination of factors including increased market volatility due to the Greek debt crisis, a large sell algorithm that flooded the market, and high-frequency traders exacerbating price movements by buying and selling among themselves. The crash highlighted issues with market structure and liquidity. Subsequent studies analyzed order flow toxicity and the role of liquidity in flash crashes. New regulations like circuit breakers were implemented to prevent future crashes.
This document provides an overview of stocks and the stock market. It defines what stocks are, including common stock and different types. It discusses factors that influence stock prices such as company news, earnings, and investor sentiment. It introduces several major stock indices like the Dow Jones Industrial Average and S&P 500. It also explains why stock prices change in both the short-term due to news and long-term due to company fundamentals like earnings. The document is meant as an educational guide for understanding stocks and the stock market.
This chapter discusses investing in stocks and the stock market. It covers topics such as how stocks are traded on exchanges and over-the-counter markets, methods for valuing stocks like the dividend discount and Gordon growth models, how the market sets stock prices, sources of error in valuations, important stock market indexes, investing in foreign stocks, and regulation of the stock market by the SEC.
This document summarizes Bob Farrell's 10 timeless investing rules using charts and live data to illustrate each rule. The rules include that markets tend to return to the mean over time, excesses in one direction will lead to an opposite excess, there are no new permanent eras, rapidly rising or falling markets usually go further than expected but don't correct sideways, the public buys at tops and sells at bottoms, and bull markets are more fun than bear markets. The document uses charts and examples to demonstrate each rule.
2Evaluating StocksEvaluating StocksLearning Team BFIN402.docxlorainedeserre
The document evaluates several stocks in a portfolio including PepsiCo, Apple, Microsoft, Aritzia, and Amazon. It reviews each stock, discussing factors like recent price movements and overall market conditions that have impacted the stocks. It concludes that while the overall market has been impacted by global events, the portfolio remains healthy and will likely see corrections over time.
2Evaluating StocksEvaluating StocksLearning Team BFIN402.docxjesusamckone
2
Evaluating Stocks
Evaluating Stocks
Learning Team B
FIN/402
03/16/2020
Troy Mahone
The stocks in this portfolio are the following: PepsiCo, Apple, Microsoft, Aritzia, and Amazon. An assessment was conducted to establish if the stocks should remain in the portfolio.
Stock Reviews and Discussion
If I review the investment in PepsiCo., the business has reflected a slight decrease in the stock price, as being traded daily on the floor, the reason which we can assume is the over all market turbulence, being caused by the Oil market, and it is directly impacting US economy, and hence reflecting the same on the stocks trade in the market.
Apple Inc., stock has also reflected a bit decline as directly related to activities being performed in the market, more over the share is constantly moving the range of $30 up/down, being range bound, hence reflects that the business is performing well, and keeping at the place in the market. Citing Chinese government data, Reuters recently reported that Apple sold just 494,000 iPhones in the country in February. That was a steep decline from the 1.27 million units the company had shipped in the prior-year period and the two million units sold in January. The situation was bad across the board, as overall smartphone shipments fell 54.7% annually during the month, according to the China Academy of Information and Communications Technology.
Microsoft has reflected a steady decline, although it is not much material, and market expectancy is to correct it, I believe the more effect on Microsoft stock price down fall is related to news spread in the market, that Bill Gates is resigning himself, from the position of the President and leaving the board, market sentiments are attached to this news, but I believe in coming few months, business is going to show tremendous growth in the shares value. I feel that Microsoft offers many types of shares like mutual funds holders, individuals, stakeholders and other institutional shares. With these shares they are often bought and sold. The rates of shares range 42.14% to 6.18%.
Aritizia has shown some of the great moment during the last tenure, touching up the higher side and then again the lower side, is a mixed up reaction, as it moved between range of $200-250 in few days, the reason of such movement is overall market performance, the oil war, and the Corona virus worldwide economic impact. The current state of our society has resulted in a very volatile market. In times like these investors may be cautious towards putting their savings into stocks. However, this is also a good time to buy at low prices. ATZAF has seen a decline in market price over the past month, however a significant amount of that decline can be attributed to nation-wide panic. Most of the clothing inventory held by Aritzia comes from Vietnam. Countries in Asia are being hit especially hard by the virus and as a result North American companies are seeing experiencing breaks in their sup.
The document discusses economic bubbles, defining them as situations where asset prices exceed their fundamental value due to speculative demand. It then provides examples of different types of bubbles like market, commodity, and stock bubbles. The causes of bubbles are explained as irrational exuberance, herding behavior, short-termism, and monetary policy issues. Finally, the 5 stages of bubbles are outlined as displacement, boom, euphoria, profit-taking, and panic.
This chapter discusses factors that cause interest rates to change over time. It examines the forces that move interest rates using a supply and demand framework for bonds. The demand for bonds depends on wealth, expected returns, risk, and liquidity. The supply depends on expected profitability, expected inflation, and government activities. Changes in these factors can shift the supply and demand curves for bonds and change the equilibrium interest rate. The chapter analyzes examples like the Fisher effect and business cycle expansions to demonstrate how interest rates are determined.
Common stock represents partial ownership in a corporation. There are two main types: common stock which usually entitles the owner to vote, and preferred stock which generally does not have voting rights but has a higher claim on assets and earnings. Common stock owners are also known as shareholders or equity owners. A board of directors is elected to establish policies and make decisions on major company issues. Companies may pay dividends to shareholders from a portion of earnings.
1. Common stock represents ownership in a corporation and a claim on its assets and earnings. There are different types including common, preferred, and classes A and B.
2. Owners of common stock are also known as shareholders or equity owners. They may receive dividends as determined by the board of directors and can benefit from capital gains.
3. Fundamental analysis and technical analysis are two main approaches used to evaluate common stocks and make investment decisions.
Economics is the study of how resources are allocated in a society. It has two main branches: macroeconomics, which looks at broad aspects of the economy as a whole such as income, investments, and GDP; and microeconomics, which examines specific aspects like the relationship between price and costs for individual firms. Key economic indicators include stock markets where shares of companies are traded, GDP which measures overall economic output, and whether the market is in a bull phase of expected rising prices or a bear phase of expected falling prices.
- The US equity market has outperformed the Canadian market over the past quarter due to its sector compositions which favor healthcare and technology over energy and utilities. As a result, the US dollar has strengthened against the Canadian dollar.
- Low energy prices have negatively impacted the Canadian economy, particularly in Alberta, with major firms beginning layoffs. However, low prices are boosting the US economy through increased consumer spending.
- Uncertainty around oil prices and the new NDP government in Alberta are curtailing capital investment, which is now flowing to other provinces like Saskatchewan and British Columbia. Oil prices are expected to remain low due to oversupply and weak demand.
1. Stock Market and Macroeconomy
Share of stock is a private financial asset, like a
corporate bond
Both are issued by corporations to raise funds, both
offer future payments to their owners
but what is the main difference between these
two?
When a firm issues new shares of stock- called
public offerings – sale of which generates funds for
the firm- newly issued shares can be sold to
someone else
Virtually all the shares traded in the stock market
are previously issued- trading doesn’t involve the
firm that issued the stock
2. Contd
But why the firm still concerned about the price
of its previously issued share?
- first, the firm’s owners-its stockholders-want
high share prices because that is the price they
can sell at
-second, previously issued shares are perfect
substitute of new public offerings –
------------therefore, the firm cannot expect to
receive higher price for its new shares than the
going price on its old shared
---what is the result then??
3. Contd..
In 1983, only 19 percents of Americans owned share of
stocks either directly or through mutual funds(?) – in 2003,
almost 50% American owned stock
You own a share of stock implies you own part of the
corporation-own a fraction of the company’s total stock
you are entitled to a particular percent of the firm’s after tax
profit
However, firms do not pay all their after-tax profit to share
holders- some is kept as retained earnings for later use of
the firm
The part of profit distributed to share holders is called
dividends
Aside from dividends, usually more important reason to
holding stocks is to enjoy capital gains – return someone
gets when they sell a stock at a higher price than they paid
for it
4. Tracking the stock market
Financial market is so important that stocks and
bonds are monitored on a continuous basis
You can find out the value of a stock instantly
just by checking with a broker or logging onto a
website
Daily news paper or specialized financial
publication such as Wall Street Journal or
Financial Times report daily information
In addition to that, there are many stock market
indices
5. Tracking..
Oldest and most popular average
Dow Jones Industrial Average (DJIA)-tracks
prices of 30 of the largest companies
Another popular average
Broader Standard & Poor’s 500 (S&P 500)
NASDAQ index tracks share prices of about
5,000 mostly newer companies whose shares
are traded on NASDAQ stock exchange
Often, stock market averages will rise and
fall at the same time, sometimes by the
same percentage
In spite of falling stock prices in 2000 and
2001, the last decade was good for stocks
6. Explaining Stock Prices—Step #1:
Characterize The Market
Price of a share of stock—like any
other— is determined in a market
We’ll characterize the market for a
company’s shares as perfectly
competitive
View stock market as a collection of
individual, perfectly competitive markets
for particular corporations’ shares
Many buyers and sellers
Virtually free entry
7. Step #2: Find The Equilibrium
Like all prices in competitive markets, stock prices are
determined by supply and demand
However, in stock markets, supply and demand curves require
careful interpretations
Figure 1 presents a supply and demand diagram for shares of
Fedex Corporation
On any given day, number of Fedex shares in existence is just
the number that the firm has issued previously
Just because 302 million shares of Fedex stock exist, that does not
mean that this is the number of shares that people will want to hold
People have different expectations about firm’s future profits
At any price other than $90 per share, number of shares people are
holding (on the supply curve) will differ from number they want to
hold (on the demand curve)
Only at equilibrium price of $90— people satisfied holding number of
shares they are actually holding
Stocks achieve their equilibrium prices almost instantly
8. Figure 1: The Market For Shares of
Fedex Corporation
Price per Share S
$120
90 E
60
D
302 million Number of Shares
9. Step #3: What Happens When
Things Change?
Supply curve for a corporation’s shares shifts rightward whenever
there is a public offering
The changes we observe in a stock’s price—over a few minutes, a
few days, or a few years—are virtually always caused by shifts in
demand curve
what causes these sudden changes in demand for a share of
stock?
In almost all cases, it is one or more of the following three factors
Changes in expected future profits of firm
Any new information that increases expectations of firms’ future
profits will shift demand curves of affected stocks rightward
Including announcements of new scientific discoveries, business
developments, or changes in government policy
Macroeconomic Fluctuations
Any news that suggests economy will enter an expansion, or that an
expansion will continue, will shift demand curves for most stocks
rightward
Changes in the interest rate
A rise (drop) in the interest rate in the economy will shift the demand
curves for most stocks to the left (right)
10. Step #3: What Happens When
Things Change?
Even expectations of a future interest
rate change can shift demand curves
for stocks
Such an event occurred on February
27, 2002, when Fed Chair Greenspan
announced that it appeared economy
was recovering from its recession
News that causes people to anticipate a
rise in interest rate will shift demand
curves for stocks leftward
Similarly, news that suggests a future drop
in the interest rate will shift demand curves
for stocks rightward
11. Figure 2a: Shifts in the Demand
for Shares Curve
(a)
Price S The demand curve shifts rightward when
per Share new information causes expectations of:
• higher future profits
• economic expansion
$75 • lower interest rates
60
D2
D1
298 million Number of Shares
12. Figure 2b: Shifts in the Demand
for Shares Curve
(b)
Price S The demand curve shifts leftward when
per Share new information causes expectations of:
• lower future profits
• recession
• higher interest rates
60
45
D1
D3
298 million Number of Shares
13. Figure 3: The Two-Way Relationship Between
The Stock Market and the Economy
Stock Market Macroeconomy
14. How the Stock Market Affects the
Economy
On October 19, 1987, there was a dramatic drop in the
stock market
One that made decline on September 17, 2001 seem
small by comparison
Dow Jones Industrial Average fell by 508 points—a drop
of 23%— about $500 billion in household wealth
disappeared
Newscaster Sam Donaldson asked, “Mr. President, are
you concerned about the drop in the Dow?”
As Reagan entered his helicopter, he smiled calmly and
replied,
“Why, no, Sam. I don’t own any stocks”
It was a curious exchange (perhaps Reagan was joking)
Whatever Reagan’s intent, statement was startling
Because, in fact, stock market does matter to all
Americans
15. The Wealth Effect
To understand how market affects economy, let’s run
through following mental experiment
Suppose that, for some reason stock prices rise
When stock prices rise, so does household wealth
What do households do when their wealth increases?
Typically, they increase their spending
Link between stock prices and consumer spending is
an important one, so economists have given it a name
Wealth effect
Tells us that autonomous consumption spending tends
to move in same direction as stock prices
When stock prices rise (fall), autonomous consumption
spending rises (falls)
16. The Wealth Effect and Equilibrium
GDP
Autonomous consumption is a component of
total spending
Can summarize logic of the wealth effect
Changes in stock prices—through the wealth effect
—cause both equilibrium GDP and price level to
move in same direction
An increase in stock prices will raise equilibrium GDP and
price level
While a decrease in stock prices will decrease both equilibrium
GDP and price level
17. The Wealth Effect and Equilibrium
GDP
How important is wealth effect?
Economic research shows that marginal propensity to
consume out of wealth is between 0.03 and 0.05
Change in consumption spending for each one-dollar
rise in wealth
As a rule of thumb, a 100-point rise in DJIA—which
generally means a rise in stock prices in general—
causes household wealth to rise by about $100 billion
This rise in household wealth will increase
autonomous consumption spending by between $3
billion and $5 billion—we’ll say $4 billion
Rapid increases in stock prices can cause significant
positive demand shocks to economy, shocks that
policy makers cannot ignore
Similarly, rapid decreases in stock prices can cause
significant negative demand shocks to economy,
which would be a major concern for policy makers
18. Figure 4: The Effect of Higher
Stock Prices on the Economy
(a) (b)
Price AS
Aggregate Expenditure
Level
AEhigher stock prices
AElower stock prices
P2
P1
ADhigher stock prices
45° ADlower stock prices
Y1 Y2 Real GDP Y1 Y3 Y2 Real GDP
19. How the Economy Affects the Stock
Market
Let’s look at the other side of the two-way
relationship
How economy affects stock prices
Many different types of changes in the overall
economy can affect the stock market
Let’s start by looking at the typical expansion
Real GDP rises rapidly over several years
In typical expansion (recession), higher (lower)
profits and stockholder optimism (pessimism)
cause stock prices to rise (fall)
20. What Happens When Things
Change?
Figure 5 illustrates three different
types of changes we might explore
A change might have most of its initial
impact on the overall economy, rather
than the stock market
There might be a shock that initially
affects stock market
Shock could have powerful, initial
impacts on both stock market and
overall economy
21. Figure 5: Three Types of
Shocks
Shock to Shock to
stock market macroeconomy
Stock Market Macroeconomy
Shock to both
stock market and
macroeconomy
22. A Shock to the Economy
Imagine that new legislation greatly increases
government purchases
To equip public schools with more sophisticated
telecommunications equipment, or to increase the
strength of our armed forces
What will happen?
Rise in government purchases will first increase real
GDP through expenditure multiplier
When we include effects of stock market, expenditure
multiplier is larger
An increase in spending that increases real GDP will
also cause stock prices to rise, causing still greater
increases in real GDP
Similarly, a decrease in spending that causes real
GDP to fall will also cause stock prices to fall, causing
still greater decreases in real GDP
This is one reason why stock prices are so carefully
watched by policy makers, and matter for everyone
Whether they own stocks themselves or not
23. A Shock To the Economy and the Stock Market:
The High-Tech Boom of the 1990s
1990s—especially second half—saw
dramatic rise in stock prices
Growth in real GDP averaged 4.2% annually
from 1995-2000
In part, economic expansion and rise in
stock prices were reinforcing
Each contributed to the other
Internet had a direct impact on stock
market through its effect on expected
future profits of U.S. firms
At the same time, technological revolution
was having a huge impact on overall
economy
24. A Shock To the Economy and the Stock Market:
The High-Tech Boom of the 1990s
Faced with these demand shocks, Federal
Reserve would ordinarily have raised its
interest rate target to prevent real GDP
from exceeding potential output
Technological changes of 1990s were an
example of a shock to both stock market
and economy
Result was a market and an economy that were
feeding on each other, sending both to new
performance heights
Was this a good thing?
Yes, and no
In spite of all this good news, there were
dark clouds on horizon
25. A Shock to the Economy and the Stock Market:
The High-Tech Bust of 2000 and 2001
The market—especially high-tech NASDAQ stocks—
began to decline in early 2000
Both economy and market were being affected by
several events discussed in earlier chapters of this
book
During 1990s, there had been an investment boom
Businesses rushed to incorporate the internet into
factories, offices, and their business practices in general
Fed may have played a role as well
Decline in investment—and the recession it caused—
can be regarded as a shock to economy
In addition, there was a direct shock to market
A change in expectations about the future
Unfortunately, in late 2000 and early 2001, reality set
in
26. The Fed and the Stock Market
Experience of late 1990s and early 2000s
raised some important questions about
relationship between Federal Reserve and
stock market
In 1995 and 1996, Greenspan and other
Fed officials began to worry that share
prices were rising out of proportion to the
future profits they would be able to deliver
to their owners
In this view, market in late 1990s
resembled stock market in 1920s, which is
also often considered a bubble
27. The Fed and the Stock Market
In 1996, when Alan Greenspan first made his
“irrational exuberance” speech, he seemed to side
with those who believed that the stock market was in
midst of a speculative bubble
Fed would be forced to intervene to prevent wealth
effect—this time in a negative direction—from
creating a recession
Could Fed do so?
Probably
In mid-1990s, Greenspan seemed to be trying to “talk
the market down” by letting stockholders know that
he thought share prices were too high
Implied threat
If stocks rose any higher, Fed would raise interest rates
and bring them down
It didn’t work
28. The Fed and the Stock Market
Not only were Greenspan’s efforts to “talk the market
down” unsuccessful, they were also widely criticized
Greenspan seemed to change his tune as 1990s continued
By 1998, he had stopped referring to exuberance—rational or
irrational
As 1990s came to a close, and the stock market continued
to soar, Fed faced a new problem
Wealth effect
Figure 6 shows one way we can view Fed’s problem
With aggregate demand and supply curves
Figure 6 is useful, but it has a serious limitation
Doesn’t take account of the rise in potential output
But the Phillips curve can illustrate Fed’s goal more easily
To keep inflation low and stable without needing corrective
recessions, Fed strives to maintain unemployment at its
natural rate
29. Figure 6: The Fed’s Problem In
2000: An AS-AD View
(a) (b)
If output exceeds potential, the
Price Wealth effect of rising self-correcting mechanism will
Price AS2
Level stock prices shifts AD raise the price level further
Level
rightward, raising real AS1
AS
GDP and the price level
C
P3
B
P2 P2 B
A
P1 AD2 P1 A AD2
AD1 AD1
Y1 Y2 Real GDP Y1 Y2 Real GDP
30. Figure 7: The Fed’s Problem in
2000: A Phillips Curve View
(a) (b) But if the natural
Inflation Inflation rate is above 4%
Rate If the natural rate of Rate
unemployment is 4%, the C the Phillips curve
Fed can keep the economy 5.0% will shift upward
at point A in the long run and the Fed must
choose between
higher inflation . . .
A D
2.5% A 2.5%
. . . or recession
B
1.5%
PC1 PC1 PC
2
4% Unemployment 4% 5% Unemployment
Rate Rate
UN ? UN?
31. The Fed and the Stock Market
Might think Fed can estimate natural rate by a process of
trial and error
Bring unemployment rate to a certain level (such as 4%) and
see what happens to inflation
Unfortunately, things are not so simple
Fed looks ahead and determines whether current economic
conditions are likely to raise inflation rate in the future
That is just what Fed did beginning in mid-1999
By raising interest rates to rein in the economy, Fed also
brought down stock prices
By slowing economic growth and growth in profits
Through direct effect of higher interest rates on stocks
By 2001, high-tech bust, recession of 2001, and attacks of
September 11 brought criticism to an end
As the economy began a slow expansion, in 2002 and early
2003, Fed kept the interest rate low
Unresolved question will surface again
Who should be setting the general level of share prices—
millions of stockholders who buy and sell shares, or Federal
Reserve?