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• The macroanalysis of the relationship between
• the aggregate securities markets and the aggregate economy

The specific micro valuation of the stock market employing the valuation approaches.

Documentation of the relationship between the economy and stock prices.

Presentation of several economic series that provide specific insights related to the stock market.

Specific discussion of the macroeconomic impact of inflation and interest rates on security prices.

Brief consideration of what additional factors should be analysed when dealing with world security markets.

1. Average weekly hours, manufacturing

2. Average weekly initial claims for unemployment insurance

3. Manufacturers’ new orders, consumer goods and materials

4. Index of supplier deliveries—vendor performance

5. Manufacturers’ new orders, nondefense capital goods

6. Building permits, new private housing units

7. Stock prices, 500 common stocks

8. Money supply, M2

9. Interest rate spread, 10-year Treasury bonds less federal funds

10. Index of consumer expectations

1. Employees on nonagricultural payrolls

2. Personal income less transfer payments

3. Industrial production

4. Manufacturing and trade sales

1. Average duration of unemployment

2. Inventories to sales ratio, manufacturing and trade

3. Labor cost per unit of output, manufacturing

4. Average prime rate

5. Commercial and industrial loans

6. Consumer installment credit to personal income ratio

7. Consumer price index for services

False Signals

Currency of the data and revisions

Economic sectors not represented

Estimates the value of the stock (Vj) assuming a constant growth rate of dividends for an infinite period.

Capacity utilisation rate

Unit labour costs (changes in wages per hour and/or changes in worker productivity) 

Rate of inflation

Foreign competition (export markets are more competitive than local markets; export sales are made at a lower margin)

The value of total assets for the firm based upon the firm’s expected total asset turnover

The expected capital structure based upon the average total debt to total asset ratio.

The composite dividend-payout ratio for common stocks in a country

The required rate of return on common stock in the country being analysed.

The expected growth rate of dividends for the stocks in the country being analysed.

The business cycle and industry sectors

Structural economic changes and alternative industries

Evaluating an industry’s life cycle

Analysis of the competitive environment in an industry

Arise from the ups and downs of the business cycle

Occur when the economy is undergoing a major change in how it functions

Inflation

Interest Rates

International Economics

Consumer Sentiment

1 - Pioneering development

2 - Rapid accelerating growth

3 - Mature growth

4 - Stabilisation and market maturity

5 - Deceleration of growth and decline

Rivalry among the existing competitors

Threat of new entrants

Threat of substitute products

Bargaining power of buyers

Bargaining power of suppliers

• A detailed estimation of future earnings per
• share.

An estimate of an appropriate earnings multiplier (P/E ratio) based on a consideration of P/E determinants derived from the DDM.