Asset Manager Discussion Post – Coursework Example
Stock Valuation Stock Valuation There are various market forces that affect growth in stock valuations. The first factoris Inflation. Low inflation has had a solid backwards relationship with stock valuations. Deflation on the other hand, is generally bad for stocks because it signifies a loss in pricing power for companies. The other factor is Economic Strength of Market and Peers. The company stocks have a tendency to track with the business sector and with their division or industry peers. Some specialist firms argue that the combination of overall market and sector movements as opposed to a companys individual performance determines a majority of a stocks movement. The Incidental Transactions is the other component. Incidental transactions are sale and purchase of a stock that are influenced by other factors other than intrinsic value of the stock (Harper, 2004).
The lower interest rates also affect. Lower interest rates can make imparts more appealing for two reasons. Lower investment rates help support financial development making firms more gainful. Additionally lower interest rates make imparts moderately more appealing than sparing cash in a bank or holding securities. On the off chance that security yields fall, it may sway financial specialists to switch into shares which give a generally better profit (Pettinger, 2012).
The situation in which increase in stock value is bad for economy is in case of inflation. Inflation is the rise in price of goods and services and reduces the purchasing power each unit of currency can buy. This correlation assumed to be a fact that unexpected inflation possesses unique information about upcoming prices. So the rise in inflation leads to rise in the stock value. Inflation is the situation where the rise in stock value is bad for economy (Kristina Zucchi, 2013).
Harper, D. (2004). Forces That Move Stock Prices. Investopedia. Retrieved 5 February 2015, from http://www.investopedia.com/articles/basics/04/100804.asp
Pettinger, T. (2012). Factors Affecting the Stock Market - Economics Help. Economics Help. Retrieved 5 February 2015, from http://www.economicshelp.org/blog/2841/economics/factors-affecting-the-stock-market/
Kristina Zucchi, C. (2013). Inflations Impact On Stock Returns. Investopedia. Retrieved 5 February 2015, from http://www.investopedia.com/articles/investing/052913/inflations-impact-stock-returns.asp