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The Role of Economics & Politics in the Stock Market
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Simplify Wall Street
June 02, 2024
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Missed out on Ring and Nest? Don’t let RYSE slip away!
Ring 一 Acquired by Amazon for $1.2B
Nest 一 Acquired by Google for $3.2B
If you missed out on these spectacular early investments in the Smart Home space, here’s your chance to grab hold of the next one.
RYSE is a tech firm poised to dominate the Smart Shades market (growing at an astonishing 55% annually), and their public offering of shares priced at just $1.50 has opened.
They have generated over 20X growth in share price for early shareholders, with significant upside remaining as they just launched in over 100 Best Buy stores.
Retail distribution was the main driver behind the acquisitions of both Ring and Nest, and their exclusive deal with Best Buy puts them in pole position to dominate this burgeoning industry.
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(Get Discord Alerts Here) Another Green Week!
SPY 528c (excuse the typo) was bought for $88 and sold at $230 per contract.
GME is Currently up 20% but still holding.
To show how a trading week can go from ‘eh’ to ‘yay,’ let me explain the week. I alerted a bad futures trade that went -20. Later, I opened a trade that went +11 to make some cash back. Later in the week, $SPY, $GME, and $SMCI bounced for profit.
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Economics + Education
Economics & Politics
What role does it play in the stock market?
This is important because most traders think everything is about technical analysis. Though some analytics mean a lot more than others, such as volume, or demand and supply, you must understand Economics and politics to weed out the bullcrap on Wall Street.
The Role of Economics in the Stock Market
Economic Indicators: Key economic indicators such as GDP growth, unemployment rates, inflation, and consumer confidence have direct impacts on stock prices. For example:
GDP Growth: A strong GDP growth rate generally signals a robust economy, leading to higher corporate profits and boosting stock prices.
Unemployment Rates: Low unemployment rates indicate higher consumer spending, which can drive revenue growth for companies and positively influence their stock prices.
Inflation: Moderate inflation is usually a sign of a growing economy, but high inflation can erode purchasing power and corporate profits, leading to a potential decline in stock prices.
Consumer Confidence: High consumer confidence typically leads to increased spending, which benefits companies’ revenues and boosts their stock prices.
Interest Rates: Central banks, such as the Federal Reserve in the U.S., influence stock markets through their control of interest rates. Lower interest rates reduce the cost of borrowing, encouraging businesses to expand and consumers to spend, which can drive up stock prices. Conversely, higher interest rates can slow down economic activity and lead to lower stock prices.
Corporate Earnings: The performance of individual companies, reflected in their earnings reports, directly affects their stock prices. Positive earnings reports generally lead to stock price increases, while disappointing earnings can result in stock price declines.
The Role of Politics in the Stock Market
Government Policies: Fiscal policies, including tax policies and government spending, can have significant effects on the stock market.
Tax Cuts: Tax cuts for businesses can increase after-tax profits, leading to higher stock prices.
Government Spending: Increased government spending can stimulate economic growth, benefiting companies and their stock prices.
Regulatory Environment: Changes in regulations can impact industries differently. For example:
Environmental Regulations: Stricter environmental regulations might increase costs for manufacturing companies, potentially lowering their stock prices.
Financial Regulations: Looser financial regulations can benefit banks and financial institutions, leading to higher stock prices in that sector.
Political Stability and Geopolitical Events: Political stability and geopolitical events, such as elections, wars, and trade agreements, can create uncertainty or confidence in the market.
Elections: Elections can lead to policy changes that impact the economy and specific sectors of the stock market. For instance, the election of a pro-business government might boost stock prices, while a government favoring higher taxes and regulation could have the opposite effect.
Trade Agreements: Positive trade agreements can open new markets for companies, boosting their stock prices. Conversely, trade wars can lead to tariffs and trade barriers, negatively affecting stock prices.
Examples
COVID-19 Pandemic (2020): The pandemic caused unprecedented economic disruption, leading to significant stock market volatility. Central banks’ monetary policies, including interest rate cuts and quantitative easing, were crucial in stabilizing markets. Governments’ fiscal stimulus packages also played a key role in supporting economies and driving stock market recoveries.
U.S.-China Trade War (2018-2019): The trade tensions between the U.S. and China led to market uncertainty and volatility. Stocks of companies heavily reliant on trade with China, such as technology and manufacturing firms, were particularly affected. Announcements of tariffs and trade negotiations caused significant market movements.
Brexit (2016-2020): The political process of the UK leaving the European Union caused uncertainty in the stock market, particularly affecting UK and European stocks. Companies with significant exposure to the UK or EU markets experienced increased volatility.
Conclusion
While technical analysis remains a valuable tool for traders, understanding the broader economic and political landscapes is crucial for making informed investment decisions. Economic indicators, central bank policies, government regulations, political stability, and geopolitical events all play significant roles in influencing stock market trends. By incorporating these factors into their analysis, traders can better navigate the complexities of the market and enhance their decision-making processes.
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News
NEWS
This was a longer lesson. I have put the links to noteworthy news. I will continue the news breakdown in our Thursday read.
The S&P 500 is set to rebalance on June 21, and Palantir will be eligible for the third time.
Management shared an expectation for Dell’s DELL, -17.87% gross-margin rate to decline roughly 150 basis points in fiscal 2025, due to “inflationary input cost, the competitive environment and a higher mix of AI optimized servers.”
Chip stocks now dominate S&P 500 index for the first time.
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$TSLA - Annual meeting June 13th.
$/ES - Do we trade above my pivot?
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