economy

The stock market and the economy

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It would be rational to think that there is a relationship between the economy and the stock market. If the economy is performing well, then it could be assumed that economic growth would enhance the profitability of a company and hence improve their stock price. In a recession, companies can encounter lower profits. This may mean reduced dividends for stockholders and a falling share price.  There have been numerous studies on this argument. Stock prices change rapidly and can be …

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What happens to the economy when the housing market cools?

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Last week we discussed the sectors which would be impacted by a housing decline. In this article we discuss the implications to the economy in a housing downturn. We have seen auction clearance rates dropping in most areas recently and with more rate rises anticipated, interest in the housing market is weakening. Consumer Spending There is a direct correlation between the housing market and consumer spending. Consumer spending levels will then have an effect on the economy. When house values …

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Why is the stock market rallying when the economy is heading into recession?

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To the average person on the street, it seems illogical when we hear about economic recession and high unemployment levels but the share market is going up. At Fairmont Equities, we have been bullish on the share market since the end of March, buying up stocks that will benefit from an economic rebound. With the Australian market sailing past our short-term target of 6000, it has left many people scratching their heads and wondering why shares have rallied so strongly. …

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What is quantitative easing?

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When conventional methods of increasing economic growth has not worked, then central banks may resort to quantitative easing. It is a method of encouraging economic growth by increasing the money supply. Definition Central banks increase the supply of money by buying bonds from banks. To raise money to purchase these bonds they print money. When banks sell bonds to the central bank, they increase cash reserves and this should encourage them to lend out money to businesses and individuals. The …

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Why is deflation a concern?

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There are fears that that the US economy could fall into a depression, and this could cause deflation. These concerns have emerged after US consumer prices fell 0.8% in April 2020. Most people understand that a depression is something that needs to be avoided, but what about deflation? It is less understood but is something that investors need to be concerned about. Definition of deflation Deflation is defined as the decrease of the general price level of goods and services. …

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