View
214
Download
0
Embed Size (px)
Citation preview
Mutual Investment Club of Cornell
What’s the end goal here?
Read and interpret economic news Understand how economic trends
impact investment decisions
Mutual Investment Club of Cornell
Where are we going?
Macro stats to keep any eye on The Business Cycle Fiscal Policy Monetary Policy/ The Fed A few case studies
Mutual Investment Club of Cornell
Why bother with the macro stuff?
Macroeconomic events have far reaching implications and can lift up or push down the entire market.
You can have a company figured out almost completely and get completely knocked off your feet by a macro event. Any examples come to mind?
Macro analysis lets you make sector-wide recommendations.
Mutual Investment Club of Cornell
Expectations
Expectations matter! Markets move when news deviates from
expectations Especially important for macro Example:
Expectations of unemployment
Mutual Investment Club of Cornell
Macro stats: GDP
Gross Domestic Product (GDP) is the market value of all final goods and services made within the borders of a country in a year.
How do changes in GDP impact different sectors? Need to examine the different
components of GDP Y = C + I + G + CA
Mutual Investment Club of Cornell
Macro Stats: Industrial Production
Industrial Production is a measure of output that focuses on manufacturing and industry. Used to measure the resilience of the
manufacturing side of the economy, specifically.
Mutual Investment Club of Cornell
Macro Stats: Unemployment Rate
The Unemployment Rate is the percentage of the labor force that is not employed. The labor force is everybody who is
employed or has sought employment in the last month.
In the U.S., unemployment is 9.1%, up from about 4.5% in 2007.
Mutual Investment Club of Cornell
Macro Stats: Inflation
Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.
A little inflation (~ 2-3%) is good for the economy, but too much is very very bad.
Mutual Investment Club of Cornell
Interest Rates
Interest Rates refer to the yearly cost of borrowing money, expressed as a percentage.
When rates are high, businesses are less willing to invest in new projects, since they can earn a better return in the market, and consumers will consume less, since they earn a higher return on their savings.
Mutual Investment Club of Cornell
The Business Cycle: Symptoms
Recessions (contractions in economic activity) will typically be accompanied by: Falling GDP Rising Unemployment Lower inflation (but not always) Lower consumer sentiment Indeterminate effect on interest rates
Mutual Investment Club of Cornell
The Business Cycle: Causes
Demand shocks Fiscal shocks *Monetary policy* Private spending Sectoral shifting
Real shocks Oil embargos, and the like
Notoriously hard to predict
Mutual Investment Club of Cornell
Fiscal Policy
Fiscal Policy refers to the taxing and spending decisions of the government.
Government purchases goods and services
Changes in fiscal policy may impact what and how much they buy
Mutual Investment Club of Cornell
Monetary Policy
When the Fed pumps money into the economy, it tends to lower interest rates. Lower rates mean: More business investment Less consumer saving
When the Fed takes money out, it tends to raise interest rates. Higher rates mean: Less business investment Less consumer saving
Mutual Investment Club of Cornell
How the Fed Operates
The Fed is entrusted with a “dual mandate.” Their goal is to maintain “full employment” and “price stability.”
Mutual Investment Club of Cornell
Sector Analysis
We mentioned before that we can use macroeconomic ideas to make investment decisions on a sectoral basis.
Suppose that we anticipate the economy performing worse than expected next year, but we would still like to be invested in stocks. What would we do?
Mutual Investment Club of Cornell
Defensive Stocks
We would want to look at companies whose profitability will not take as big of a hit. Defense (revenue from government
contracts) Non-cyclical consumer goods (food, etc.) Utilities Health care/pharmaceuticals
We call stocks like this “defensive stocks” Underperform on the way up Overperform on the way down
Mutual Investment Club of Cornell
Sector Analysis
We can also use sectoral analysis on the way up.
Suppose you feel that the macroeconomy will recover over the next year, more so than current forecasts. How might you try to profit from this?
Mutual Investment Club of Cornell
Cyclical Stocks
Buy stocks in sectors whose profitability will increase more than average as the economy recovers. Consumer cyclical (cars, appliances) Luxury goods Technology Financials (sort of)
Mutual Investment Club of Cornell
Tata Motors
Today’s pitch What is the macro impact? Stay tuned for our contribution to the
pitch!