Analying Products.docVIP

Chapter 8 Analyzing Products Fundamental Analysis - examines the fundamental outlook for a company or industry examines economic factors, products, competition, business cycle, product life, ratios Technical Analysis - examines historic stock price volume movements - anything that can affect stock price is reflected in the price 3 theories explaining expectations 1) Random Walk - new info available randomly - price changes random have no relation to future price changes 2) Rational Expectations - investors make intelligent decisions based on available info - assumes all investor have access to info react in similar way 3) Efficient Markets -assumes mkt price fully reflects all available info Fundamental Macro Economic Analysis - affect investor expectations ( security prices External Factors - wars, technological change, S/D factors for commodities Fiscal Policy - Tax Changes -- personal -- ↑ tax, ↓ disposable income, ↓ expenditures -- corporate -- ↑ taxes, ↓ profits, less available to spend -- lag Govt Spending -- stimulative impact on economy -- can target specific sectors Accumulated Debt -- high interest payments on debt -- reduces fiscal alternatives --- higher interest rates (higher country risk), increased levels of foreign debt Monetary Policy - interest rate changes - support real sustainable economic growth - more important because fiscal policy options constrained currency concerns - interest rate spreads - Canada vs U.S. cyclical pressures economic differentials bond market concerns - fear of inflation Tilting of yield curve - if ↑ in ST rates and ↓ in LT rates i A Process -bond mkts concerned about inflation, ↑ yields ↓price B - ↑ ST rates, rate of ↑ in bond yields slows - ↑ ST rates again, economy slows - as continue, eventually ↓ LT rates - ↓ competition between stocks bonds - when yield curve tilts, good for stocks - degree frequency of tilting has increased over time Flow of Funds - pu