the uncertainty and fear created by falling stock prices and anemic
consumer and business spending. As of this writing, the jury
is still out on this strategy of governments keeping businesses
and industries afloat to ensure both employment and a tax base
and stabilize corporate securities markets. The thing to remember
as traders is that we do not attempt to anticipate the effects
of this strategy in the financial marketplace. We let the market
tell us how it interprets these actions by seeing which signals are
proving profitable, the buy triggers or the sell triggers. We do
know this, though: The volatility created by economic uncertainty
is a feeding bell for professional traders.
There are many nuances in the fundamental valuations of
stocks, other financial instruments, and currencies, and we’ve
taken a look at the major ones. As we’ve seen, there are four
important factors in the pricing process for financial markets:
1. Current business conditions, meaning income and cash on
hand for companies
2. Interest rates, in which differentials between countries can
create market momentum
3. Inflation, in which the concern is whether inflation is
growing or ebbing
4. Individual spending habits, which are defined as housing
and disposable income
The bottom line in business and market valuations nearly
always is determined by fundamental developments. Fundamentals
are the why of price action. There is no doubt about
the role a country or region’s capital flows and trade flows play
in determining currency prices.
The Why of Price Valuation
31
the uncertainty and fear created by falling stock prices and anemic
consumer and business spending. As of this writing, the jury
is still out on this strategy of governments keeping businesses
and industries afloat to ensure both employment and a tax base
and stabilize corporate securities markets. The thing to remember
as traders is that we do not attempt to anticipate the effects
of this strategy in the financial marketplace. We let the market
tell us how it interprets these actions by seeing which signals are
proving profitable, the buy triggers or the sell triggers. We do
know this, though: The volatility created by economic uncertainty
is a feeding bell for professional traders.
There are many nuances in the fundamental valuations of
stocks, other financial instruments, and currencies, and we’ve
taken a look at the major ones. As we’ve seen, there are four
important factors in the pricing process for financial markets:
1. Current business conditions, meaning income and cash on
hand for companies
2. Interest rates, in which differentials between countries can
create market momentum
3. Inflation, in which the concern is whether inflation is
growing or ebbing
4. Individual spending habits, which are defined as housing
and disposable income
The bottom line in business and market valuations nearly
always is determined by fundamental developments. Fundamentals
are the why of price action. There is no doubt about
the role a country or region’s capital flows and trade flows play
in determining currency prices.
The Why of Price Valuation
31
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