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CHAPTER 4 : Economic & Industry Analysis - Coggle Diagram
CHAPTER 4 : Economic & Industry Analysis
ECONOMIC ANALYSIS
COMPONENTS OF MARKET ANALYSIS
Microvaluation
anaysis
employing the valuation approaches
Macroanalysis -relationship between the aggregate
securities market and aggregate economy
THE DOMESTIC ECONOMY
economic
variables
Gross Domestic Product
is the value of goods and services produced in an
economy.
Interest Rates
is a sensitive factor to the stock market. A high interest rate
would attract investors to invest in fixed-income investment.
Inflation
is the rate at which the general level of prices is rising
Unemployment rate
has an inverse relationship with the price in the stock market
Marcomarket
Analysis
Economic activity & security market
the relationship between the economy and the stock market
has shown that stock prices are one of the better “leading indicator” series.
Reason :
Stock prices reflect expectations of earnings, dividends, and interest rates.
Stock market reacts to various leading indicator series, such as corporate
earnings, money supply and interest rates
Stock prices consistently turn before the economy does
Cyclical indicator catogories
Leading Indicators. Change before the economy as a whole changes. Signal future event
Lagging Indicators. Changes after the economy as a whole does. Lagging indicator is one that follow an event.
Coincident Indicators. These type of indicator change at the same time as the economy or stock market
Diffusion Indexes & rate of changes
Limitation. False signals, Currency of the data and
revisions, Economic sectors not
represented, Political and international developments are not factores into a statistical system.
MONETARY VARIABLES,THE ECONOMY,
AND STOCK PRICES
Money supply and the economy.
Money supply and stock prices.
Other economic variables & stock prices
Growth in industrial
production
Changes in the risk
premium
Changes in expected inflation during periods of volatile inflation
INFLATION, INTEREST RATES, AND
SECURITY PRICES
Inflation and interest rates
Inflation rates and bond prices
Interest rates and stock prices
INDUSTRY ANALYSIS
THE BUSINESS CYCLE AND INDUSTRY
SECTORS
THE STOCK MARKET AND THE
BUSINESS CYCLE
End of
recession
Early
recovery
During
recovery
Peak
Recession
INDUSTRY LIFE CYCLE
Pioneering Phase
Growth Phase
Mature Growth Phase
Stabilization/Maturity Phase
Decline Phase