Assessing the Impact of Macroeconomic Variables on the Performance of the U.S. Stock Market

Eric Oppong Danso

doi:10.7176/rjfa/11-14-08

Abstract

Using S&P 500 and Dow Jones Industrial Average indices as the benchmark to measure the U.S. stock market, the study focused on assessing the effects macroeconomic variables on the performance of stock market. Using multiple regression model, the study found a negative correlation of unemployment rate and GDP growth rate on the stock market performance but established a direct relation with inflation and the stock market performance. The study concluded that, the negative relationship with GDP growth rate was because the U.S. stock market tracks its performance from the global technology industry rather than economic growth whiles unemployment rate was due to the fact that, depending on the economic scenario, this variable affects the stock market differently. However, the direct relationship between the inflation because a high inflation rate reduces the purchasing power which affects the number of stocks bought and the income generated from the stock market. Keywords : Stock Market, Economic Growth, Macroeconomic Indicator, United States, Developed Country DOI: 10.7176/RJFA/11-14-08 Publication date: July 31 st 2020

Highlights

For years since the emergence of finance and stock market, many researchers and theorists have been fascinated by the relationship existing amongst the returns of stock market and macroeconomic indicators
5.0 Conclusion This research focused on establishing the effects macroeconomic indicators have on the performance of U.S stock market using both Standards and Poor (S&P) and Dow Jones Industrial Average as the benchmark
The research employed regression analysis and showed that inflation (INF) had a direct correlation on the performance of both stock indices. This relationship could be explained by the fact that an unexpected increase in inflation causes a decrease in the purchasing power – ; few stocks will be bought which directly affects the income from stock prices to the corporations

Summary

Introduction

For years since the emergence of finance and stock market, many researchers and theorists have been fascinated by the relationship existing amongst the returns of stock market and macroeconomic indicators. Contributing to the existing literature, (Gurley & Shaw 1955; 1960; 1967) argued that, “financial development is basic positive function of real income”. This emphasized the relationship existing between the financial market and economic growth rate. Different countries practices different model depending on the type of government and the regime in power (Najeb, 2013). In Europe, Germany and other Eastern European countries practices the bankbase model [3] whereas the U.K and the U.S practices the market-based [4] model of financial market (Najeb, 2013). The World Bank (1989, 1994) argued for the estblishment and promotion of stock market in order to rescue their economy

Objectives

Results

Conclusion