Causes, effects in equities
Special to The Union
What and how do stock sectors react to what particular macro-economic events?
Although common sense might lead one to think one way or another, the truth lies between both common sense and market sense — in other words, how markets react with each other and the world around them.
When interest rates rise, you might think financials perform worse, common sense pointing you to the increasing cost of the money they have to lend out.
But banks can charge more interest on the back side, and since they make a percentage on the amount they loan, higher interest rates can increase the total amount they lend out, so their percentage goes up, making them more profits, or so the story goes.
Higher interest rates can put pressure on highly leveraged companies, those that borrowed a lot to finance their activities, but it might take out some of their competitors as well, increasing market dominance for the surviving companies.
A stronger U.S. dollar can make U.S. exports more expensive, but companies that sell mostly to U.S. consumers might sell even more, making their financials even better.
Higher rates could hurt companies selling or mining gold as gold pays no interest and if rates rise the cost of holding gold becomes more expensive to investors, but higher rates could signal inflation is materializing and many investors buy gold to guard against inflation.
No matter what an investor’s belief on what does what to company sales, many underlying currents and cross currents of what happens down the line could have an opposite effect of what common sense tells you might happen.
Although no one can say for sure what exactly will happen to prices of company stocks when certain things happen, we can never say never and also never say for certain what will happen because something else does.
There are always two sides of a story.
For every investor betting a cause will cause an effect, there is always another investor willing to take the other side of that bet at the right price, simply because he believes in something else.
This article expresses the opinions of Marc Cuniberti should not be construed or acted upon as individual investment advice. Mr. Cuniberti is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Marc can be contacted at MKB Financial Services 164 Maple St #1, Auburn, CA 95603 530-823-2792. Their website is MKBFINANCIAL.COM. MKB Financial Services and Cambridge are not affiliated.
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