Interpret How Global Events Can Affect Your Investments

How Global Events Affect the Stock Market.

(Example January 2009 Just After Financial Crisis)

What is happening in the world. ahhhhh Don’t Panic !!

  • Financial crisis, the current crisis is nothing new a crisis occurs every 20 years or so where some event occurs to cause a correction in the markets and widespread panic to investors. The recent Credit Crisis is different only in the fact that the pullback was so rapid and volatile. The SP-500 has pulled back to the 2003 lows in 3 months. When the tech bubble burst in 2000, it took 3 years for that pull back to happen.
  • Banking system : massive failures in the banking systems and a lack of regulation has largely been attributed as the main cause, of the domino effect
  • Demand downturn : this has occurred because of the financial crisis, people are already in debt, and cannot finance new debt, therefore they are reducing their spending.
  • Increase in unemployment : as demand reduces, so we need less jobs to make the products that nobody wants anymore.
  • Developed world Debt : the developed world is taking on too much debt, the developed world lead by the US is taking on a lot of debt to create a stimulus package, to kick start the economy, and create jobs.
  • Market Volatility : Stocks and shares have become very volatile (this happens when people get too emotional), and have nosedived, to below the 2003 crash.
  • Continued Political unrest in the usual hotspots.
    — Middle East (affecting Oil Prices)
    — Terrorism (affecting Oil Prices)
    — Africa / North Korea / Iran

What is happening in the Market
Here you can see a chart with “trend lines” that help us view the direction of the market, and when the market breaks it current trend. You will learn more about Drawing Trendlines in a future section.
Interesting to note that the SP-500 gave us a warning of the violent downturn in July 2008.

2009 Post Crisis Stock Chart
2009 Post Crisis Stock Chart

TeleChart2007 chart courtesy of Worden Brothers, Inc.

What is happening in Sub-industries (January 2009)
The key point here, as you can see from this table, is, no matter what is happening (within reason) in the marketplace, there are always winners and losers.
In the height of this recession, you can see below, Music and Video stores, increase on average 32.78% in the last 4 weeks.

This was followed closely by Non-Metallic Mining, Semiconductors, and Long-Term Care Facilities and toy stores.

People still have the need to spend. Although they seem to be spending on smaller ticket items, rather than a 42”plasma TV, they are renting DVD’s, or buying Music. Or spending money in Toy Stores / Hobby Stores (the children’s toys are always the last thing to be axed in a recession, “parents protecting the Children”

Looking at the best industries, and examining the leaders is always a good source of future winners on the stock market.
Make up your own mind what the reasons are for these industries to be performing well, however the point is, “they are performing well”

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