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Mapping The Markets by Robin Griffiths, Deborah Owen

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2 Stockmarket cycles

The cycles described in Chapter 1 are economic, but there is a simple link between the underlying economy and the stockmarket. The most consistent long-term driver of stock values is corporate earnings and the main determinant of these earnings is the business cycle. (There are times such as the dotcom boom of the late 1990s when the market pays scant regard to corporate earnings, but most of the time they are the crucial element.) The stockmarket, however, does not move exactly in step with the economy; it tends to look ahead and discount underlying changes in the economy so shares usually rise ahead of a recovery and fall before a recession. The market leads the economy by approximately six months, but the lead time ...

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