Part 2 - Macroeconomics with GDP and the Employment Rate

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Fundamental 101
Mon, Sep 12, 2022, 9:34 PM ET  ·  2 min read  ·  0 view

When the GDP is out of balance, the government will inevitably adopt macro-control policies to maintain a stable economic growth. At this time, the GDP growth rate will slow down. If the regulation is effective, then the development trend of the securities market will also be a steady rise.

Let's summarize and conclude that when the GDP is rising steadily, it is a good thing for the securities market, and we should grasp the investment opportunities. But when the economy is out of balance, we must not touch it.

Let's take another look at another important indicators: the employment rate and the unemployment rate, which is relatively easy to understand a lot. The unemployment rate refers to the proportion of people who meet all the conditions of employment and have no jobs. The new employment rate and the unemployment rate reflect the operating conditions of enterprises.  A high number of new jobs can indicate a rise in business orders, while a high unemployment rate can indicate a weak economy.  In general, the unemployment rate and the rate of economic growth correspond inversely.  The lower the unemployment rate, the better the economy, the better the business, and the higher the stock price.

The third important indicator is the price level, The most intuitive reflection is inflation, A moderate and stable inflation can generally promote the stock market, Because this type of inflation can usually be regarded as a positive economic policy result, the purpose is to promote the overall economic growth by adjusting the price, In this case, the favorable policy tends to favor some companies, In this way, the price increases will lead to an increase in sales revenue. Bond prices will, of course, be edging up.

However, severe inflation is very dangerous, and the government will inevitably introduce tight monetary policy to curb inflation. Under this policy, the short-term profits of enterprises will inevitably fall sharply, and the funds will quickly leave the capital market, resulting in a rapid decline in stock prices.

So how do we tell if inflation is bad or bad?  Generally speaking, the inflation rate of 5% is relatively moderate. If the inflation rate exceeds 10%, it is relatively serious. Before making investment, we need to pay attention to it. Of course, the specific value needs to be combined with the market environment. Historical data can only be used as a reference.

Let's take another look at the next important economic indicators: the import and export volume. This is better understood compared to the first three indicators. The growth of import and export volume can effectively promote economic recovery, boost domestic demand, and create employment opportunities. It is also conducive to promoting industrial upgrading.  The growth of import and export will drive economic growth and make the capital market enter the rising stage.

So, in the process of analyzing the stock market and the macro economy, we not only need to clearly recognize the law of the impact of macroeconomic development on the stock market trend, but also need to understand what kind of results this impact will bring. After clearly seeing these two points, there is no problem in timing the stock market investment. If the expected macro economy is relatively good, then seize the opportunity to invest. If the macro economy is not good, we will not buy even a good company.  This is the essential first step in fundamental analysis.

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