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 The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-1 Macroeconomic and Industry Analysis Chapter.

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Presentation on theme: " The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-1 Macroeconomic and Industry Analysis Chapter."— Presentation transcript:

1  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-1 Macroeconomic and Industry Analysis Chapter 17

2  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-2 Fundamental Analysis Approach to Fundamental Analysis - Domestic and global economic analysis - Industry analysis - Company analysis Why use the top-down approach Framework of Analysis

3  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-3 Performance in countries and regions is highly variable Political risk Exchange rate risk - Sales - Profits - Stock returns Global Economic Considerations

4  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-4 Gross domestic product Unemployment rates Interest rates & inflation International measures Consumer sentiment Key Economic Variables

5  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-5 Fiscal Policy - government spending and taxing actions - Direct policy - Slowly implemented Federal Government Policy

6  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-6 Monetary Policy - manipulation of the money supply to influence economic activity - Initial & feedback effects Tools of monetary policy - Open market operations - Discount rate - Reserve requirements Federal Government Policy (cont’d)

7  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-7 Demand shock - an event that affects demand for goods and services in the economy - Tax rate cut - Increases in government spending Demand Shocks

8  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-8 Supply shock - an event that influences production capacity or production costs - Commodity price changes - Educational level of economic participants Supply Shocks

9  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-9 Business Cycle - Peak - Trough Industry relationship to business cycles - Cyclical - Defensive Business Cycles

10  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-10 Leading Indicators - tend to rise and fall in advance of the economy Examples - Avg. weekly hours of production workers - Stock Prices NBER Cyclical Indicators: Leading

11  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-11 Coincident Indicators - indicators that tend to change directly with the economy Examples - Industrial production - Manufacturing and trade sales NBER Cyclical Indicators: Coincident

12  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-12 Lagging Indicators - indicators that tend to follow the lag economic performance Examples - Ratio of trade inventories to sales - Ratio of consumer installment credit outstanding to personal income NBER Cyclical Indicators: Lagging

13  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-13 Sensitivity to business cycles Factors affecting sensitivity of earnings to business cycles - Sensitivity of sales of the firm’s product to the business cycles - Operating leverage - Financial leverage Industry life cycles Industry Analysis

14  The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Irwin/McGraw-Hill 17-14 StageSales Growth Start-upRapid & Increasing ConsolidationStable MaturitySlowing Relative DeclineMinimal or Negative Industry Life Cycles


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