First, review resources available to enhance and deepen your knowledge of the five key investment concepts that every investor should consider when investing in the financial markets:
• Evaluating investment performance
• Diversifying portfolios
• Asset allocation
• Investment risk
• Rebalancing of a portfolio
Based on your reading and research, address the following in 1 page:
When analyzing key macroeconomics data to assess GDP growth/decline, how would you measure the performance relative to sequential and year-to-year data?
How will your analysis assist you in determining the direction of the stock market?
Why do you consider the relationship between the economy and the stock market an integral part of the investment process? Explain your reasoning.
After reading the following discussions below, provide 1 page , ½ page for each comments incorporating knowledge of the noted topics, and mention practical situations to support your views for the following posting:
First discussion to provide reply to:
When investing in the stock market it is always good to know where the market currently resides. You never want to buy on the peak of price for the year unless you have enough information to back up your price target GDP is a great indictor of the Economy because if GDP is growing more than likely so is the economy. And a growing economy is a rising stock market economy.
A lot of the stock markets movements are reactionary and not always in accordance with what is happening with the individual stocks. You need to look at the market as a whole. Items such as GDP and Jobs growth and unemployment rates are great indicators of which direction the stock market will be headed.You can make all of the right stock picks but if the economy isn't performing you will not get returns on your investments. Timing is as important as quality of investments in situations with high market volatility. In this day and age it only takes a small sell off to scare investors away and that can turn into a down 500 day for the DOW. This means that almost every bull lost money on this day regardless of how well your companies stock is sitting. Timing is also important because of EX dividend dates because that determines on what date you have to own the stock to get the declared dividend. There is no crystal ball when it comes to the stock market but paying attention to the macroeconomic economy is an extremely important part of managing risk vs returns.
Second Discussion to provide reply to:
Gross domestic product (GDP) is the main indicator that economists use to help determine the fluctuation in the stock market. It not only helps to indicate the general overall strength of a country's economy, but also helps to gauge inflation. The fact that the measurement of GDP remains constant from country to country makes it a good way to compare the economies of various countries (Investopedia, 2017). While GDP is often calculated on a quarterly basis, the market indicators have proven to be more accurate if based on a full year's data. This is especially true when comparing the productivity between a variety of countries. Presently, this is the most accurate way to understand changes that have occurred over the past year and help determine what brought about the economic change.
It is important to look not only at the gross revenues of individual companies, but to also determine if expenditures have also increased. If debts have increased as well as expenses, then the overall performance of a company may be on the decline in spite of higher revenues (Herrmann, 2016). Studies have shown a direct correlation between GDP and stock market returns; long term earning usually rise as the economy increases and vice versa (Mladina, 2016). Economist are constantly evaluating the long-term relationship between GDP and stock performance. While the GDP is probably the best indicator available, there are risks involved by using this as the only indicator. Along with GDP, it is necessary to take into account other aspects of a country's economy (Buttonwood, 2014). The GDP and stock performance is more highly correlated between more developed countries. This indicates that often market returns are determined by valuations, as well as economic growth. When determining investments, it is necessary to take in all economic aspects, such as growth and development, as well as GDP to help determine the best investments (Klement, 2015).