Please pick one to discuss: Ch
Please pick one to discuss:
Chapter10: What is the role of assessing the global economy in securityanalysis?How do interest rates impact investment analysis?How do business cycles affect investment analysis?Distinguish between leading, lagging and coincidentalindicators.What is meant be sector rotation?
Answer:
leading,lagging and coincidental indicators
Leading indicators – These types of indicatorssignal future events. Bond yields are thought to be a good leadingindicator of the stock market because bond traders anticipate andspeculate trends in the economy (even though they aren’t alwaysright). New housing starts, money supply, M2, and stock prices fallunder leading indicators.
Lagging indicators – A lagging indicator is onethat follows an event. The importance of a lagging indicator is itsability to confirm that a pattern is occurring. Unemployment is oneof the most popular lagging indicators. If the unemployment rate isrising, it indicates that the economy has been doing poorly.Another example of a lagging indicator is the Consumer Price Index(CPI) which measures changes in the inflation rate.
Coincident indicators – These indicators occurat approximately the same time as the conditions they signify.Rather than predicting future events, these types of indicatorschange at the same time as the economy or stock market. Personalincome is a coincidental indicator for the economy: high personalincome rates will coincide with a strong economy. The grossdomestic product (GDP) of an economy is also a coincidentindicator.
In summary, leading indicators move ahead of the economic cycle,coincident indicators move with the economy, and lagging indicatorstrail behind the economic cycle.
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