Applied Equity Analysis and Portfolio Management + Online Video Course: Tools to Analyze and Manage Your Stock Portfolio

CHAPTER 2

Analyzing the Macro-Finance Environment

This chapter presents a system for analyzing the strength of U.S. economic activity, identifying the current stage of the business and financial cycle, and using the results of this analysis to identify stock sectors to over- and underweight in an actively managed portfolio. The learning objectives for this chapter are:

1 Explain the relation between the business and financial cycles.

2. Explain how the current stage of the financial cycle suggests which stock sectors are most likely to outperform or underperform the overall stock market over the coming year.

3. Explain what each of The Conference Board's leading, coincident and lagging indicators communicates about the strength and robustness of future, current, or past economic activity.

4. Analyze the signals conveyed by each Conference Board indicator and reduce these analyses to short written descriptions.

5. Synthesize these written descriptions into a Market Outlook Newsletter.

6. Recommend changes to a stock portfolio's active sector weights based on the analysis and conclusions contained in the Market Outlook Newsletter.

ECONOMIC ANALYSIS: THE FIRST STEP OF A TOP-DOWN FUNDAMENTAL PROCESS

This chapter guides you through the “top” part of the top-down analysis process. Before analyzing individual stocks in the chapters that follow, we will gauge the strength and resiliency of the U.S. economy to improve our investment decision-making process. For example, if our analysis ...