The stock market, specifically the tech sector, has suffered considerably this week due to the increasing conflict in the Middle East. Tech stocks have been on their biggest weekly loss in 17 months, with large corporations such as Nvidia, Meta, Apple, and Amazon contributing heavily to those losses. The S&P 500 decreased 0.9 percent, suffering its greatest losing streak since October 2022.
Combined with the uncertainty surrounding Federal interest rate cuts, the recent Iran-Israeli conflicts have clearly played a large role in this dramatic loss. Conflicts in the Middle East often lead to a decrease in investor confidence, leading many to sell in times of war. Alongside supply chain disruptions due to the conflict impacting the flow of essential tech resources, tech stocks are perceived as more volatile in times like these.
On April 13th, 2024, the Islamic nation of Iran launched a series of drone assaults on Israel. The attack was executed in response to Israel’s bombing of an Iranian consulate; the attack saw the deaths of seven Islamic Revolutionary Guard Corps members, two generals in charge of leading operations in Syria and Lebanon, and six others. The shocking attack will be felt worldwide as Iran is a major provider of global petroleum, and war with Israel would slow oil distribution.
As the US heavily depends on Iranian oil imports, the conflict can be thought to potentially cause a petroleum crisis, shoot up oil prices, and, in turn, decrease the supply of other resources and increase the costs of production. As history shows us, we can see a potential fiscal recession.
NVIDIA Corporation was founded in 1993. It has emerged as an international superpower in visual computing. Famous for their graphics cards for gaming, many were shocked when their stock rose 240% in 2023, but investors who kept a close eye on the company were rewarded for their valid speculation that NVIDIA stock was going to skyrocket. Alongside the rise of AI technology, NVIDIA grew to expand their horizons and become the preeminent supplier of AI chips.
Companies like NVIDIA make the chips that fuel the creation of products such as ChatGPT. The company has become the head of the AI chip industry, and this has led to many realizing the potential they hold. NVIDIA has skyrocketed past its competition and many find it hard to see an end to the rise of NVIDIA stock.
Jerome Powell is an American economist and attorney who currently serves as the Chair of the Board of Governors of the Federal Reserve System. He was nominated to the position by President Donald Trump and took office on February 5, 2018, succeeding Janet Yellen. Powell’s tenure as Fed Chair has been marked by efforts to maintain economic growth, manage inflation, and navigate challenges such as the COVID-19 pandemic. He has emphasized the importance of the Fed’s independence and transparency in conducting monetary policy. Powell plays a crucial role in setting the federal funds rate, which influences borrowing costs throughout the economy. Changes in interest rates can impact consumer spending, business investment, and the housing market. The Fed, under Powell’s leadership, aims to achieve maximum employment and stable prices (i.e., low inflation). The Fed’s monetary policy decisions, such as raising or lowering interest rates, are aimed at achieving these dual mandates. In times of economic crisis, such as the COVID-19 pandemic, Powell plays a critical role in implementing measures to support the economy. This can include lowering interest rates, implementing quantitative easing, and providing liquidity to financial markets.
The Federal Reserve, often referred to as “the Fed,” plays a crucial role in the U.S. economy by influencing monetary policy. One of the key tools at its disposal is the manipulation of interest rates. This report examines how the Fed’s decisions affect interest rates and, consequently, the broader economy. The Federal Reserve sets the federal funds rate, which is the interest rate at which depository institutions lend reserve balances to other banks overnight on an uncollateralized basis. Changes in the federal funds rate have a ripple effect throughout the economy. When the Fed lowers the federal funds rate, borrowing becomes cheaper for banks. This typically leads to lower interest rates for consumers and businesses on loans such as mortgages, car loans, and business loans. Lower rates incentivize borrowing and spending, which can stimulate economic growth. Conversely, when the Fed raises the federal funds rate, borrowing becomes more expensive. This can slow down economic activity as consumers and businesses are less inclined to borrow and spend. Higher rates can also lead to higher returns on savings accounts and other investments, encouraging saving over spending.In conclusion, the Federal Reserve’s decisions regarding interest rates have far-reaching effects on the economy. By influencing borrowing costs, bond yields, and exchange rates, the Fed plays a crucial role in shaping economic activity and inflation. Understanding these effects is essential for policymakers, investors, and businesses to make informed decisions
This report will analyze the relationship between the US presidential elections and the stock market. It examines historical data to determine if there is a correlation between the two and will try to predict how the 2024 presidential election will affect the stock market.
The United States presidential election is a significant event that can have many different effects on various sectors of the economy, specifically the stock market. Active investors often pay close attention to data revolving around previous elections to see how political changes may impact their investments. The data studied focuses on the S&P 500 index, as it is commonly used as a benchmark for the US stock market.
Historical data suggests that presidential elections can have a considerable impact on the stock market. Often, the stock market in the months leading up to the election tended to be more volatile than compared to other times. This can be attributed to investors being uncertain and speculation concerning the election outcome and potential monetary policy changes. Although elections can introduce short-term volatility to stock market prices, the long-term impact on stock prices is rather influenced by economic conditions, corporate earnings, and global events.
In conclusion, presidential elections can have a short-term impact on the stock market in terms of volatility, but the long-term impact is less notable and predictable. Investors should approach election cycles with a long-term perspective rather than focusing on the volatile short-term market caused by presidential elections.
The world was shocked on October 7th, 2023, when Hamas launched their assault on Israel. While the conflict impacted many countries around the world, it had the largest impact on Israel’s economy. According to data released on February 19th, 2024, Israel’s GDP plummeted by 19% in the fourth quarter of 2023, shocking many who speculated that their economy would not drop such a drastic amount. There are many key factors, caused by the conflict, that have contributed to the economic decline.
The Israeli Central Bureau of Statistics reported that private spending, the construction sector, and investments have directly sank due to the war with Hamas. The war has led to economic activity, specifically near the Gaza Strip, to plunge. Businesses located near the Strip have been forced to close, and workers are unable to come to work due to safety issues. The war has also affected tourism in Israel, a significant sector that contributes heavily to the economy. Travel concerns and the possibility of death have led to many cancellations of trips and declining tourist rates in Israel. To improve security, government spending on defense has increased drastically. This has put pressure on the government’s spending and fiscal position. Additionally, bombings have destroyed much of the infrastructure in Israel. This will require significant investment to rebuild and repair the roads, buildings, and homes that were lost.
Shekel to Dollar exchange rate Oct 2018 – Oct 2023
The 1981–1982 recession was the worst economic recession since the Great Depression. The recession was caused by a combination of tight monetary policies, tight fiscal policies, and unemployment.
With energy prices rising and the 1973 oil embargo placed on America, high inflation rates and increasing unemployment plagued the 1980s. In order to combat this, the Fed utilized the economic strategy known as the Phillips Curve. The policymakers lowered the interest rates at times, leaving a larger pool of money available, targeting unemployment. After a certain period of time, they would then raise interest rates dramatically, leaving a lesser pool of money in the hands of consumers in order to combat inflation. This strategy proved to be detrimental. Rather than decreasing unemployment and inflation, the strategy proved to be useless, and inflation and unemployment increased by 11% in the mid-1970s.
Paul Volcker, the newly appointed chairman of the Fed, proved to make the situation even worse. Ignoring the chances of short-term economic growth, Volcker imposed strict monetary policies and dramatically raised interest rates in an attempt to lessen inflation. Due to the considerably high interest rates, investment and consumption were discouraged, and this caused the economy to further worsen.
While the 1981–1982 recession was primarily due to the Federal Reserve’s strict policies to combat high inflation, these policies proved to be ultimately successful in reducing inflation in the long term but led to a significant economic recession in the short term.
Graph depicting the CPI and Unemployment rate 1970-1981
What are blue-chip companies, and how are they related to dividends? A blue-chip company is a company with a long record of financial stability and is usually the company that holds the most value on the market. With companies such as Apple, Microsoft, and Coca-Cola being considered blue-chip companies, it is safe to say that they are less risky to invest in than lesser-known, volatile companies. The name “blue chip” originates from the card game, poker. Chips in poker resemble different values based on their color, with blue having the highest value. This further supports the idea that blue-chip companies are titans in their respective industries and are reliable options to invest in.
A dividend is a payment distributed by the company to its investors and is paid in the form of cash or additional shares of stock. Dividends provide investors with a stable amount of income and are typically most beneficial for the elderly or those who seek passive income. Usually, dividends are a sign that a company is financially healthy, meaning almost every blue-chip company pays dividends. With investors investing their money safely in a Blue Chip Company, they are also receiving additional money through dividends, leading to Blue Chip Companies getting more investments and growing larger and larger.
In conclusion, dividends are payments distributed by financially stable companies to investors. This leads to investors who are seeking passive income to invest in successful Blue Chip companies, creating a cycle where investors receive dividends while Blue Chip companies receive money, earning more money and distributing dividends at higher values.
With the Fed raising interest rates 11 times between March 2022 and July 2023, almost all Americans were affected by these series of decisions. The Fed raised interest to combat inflation, but what is interest, and how does it impact inflation?
When a bank loans a borrower money, they run the risk of not receiving the money back for an extensive time. In order to penalize the borrower for using lended money, the borrower must pay an additional fee for borrowing the lender’s money, interest. The Federal Open Market Committee (FOMC) controls interest rates by setting a target range for federal fund rates, the interest rate at which banks borrow and lend each other money. If the FOMC raises the federal fund rate, banks are more likely to lend out money, and if the FOMC decreases the federal fund rate, banks are less likely to lend out money. In addition to the federal fund rate, there is also a discount rate, the interest rate the Federal Reserve charges banks that borrow from it directly.
The Fed changes the federal fund rate according to the state of the economy. In order to combat inflation, an increase in the price of goods and services and fall in purchasing power, the Fed increases the federal funds rate, meaning it costs more to borrow money, leading there to be a smaller supply of money for consumers to make purchases. This in turn leads to people saving more and less demand on goods and services, eventually leading to the economy cooling down, and inflation decreasing. In order to combat deflation, the Fed does the opposite. They lower the federal fund rate, making money cheaper to obtain. This leads to more frequent and bigger purchases, stabilizing the economy. The Federal Reserve makes these decisions based on factors such as the Consumer Price Index, how much an American consumer pays, and the Producer Price Index, prices producers receive for their output.
Recently Federal Reserve Chairman, Jerome Powell reported that the Central Bank is now deciding when to start decreasing interest rates. Interest rates increasing may cause an economic downturn, but decreasing interest rates too soon means inflation would settle above the Federal Reserve’s goal of 2%. Powell states that the Fed will take their time when making this decision because inflation is steadily decreasing and other factors in the US economy are stable.
Correlation between CPI and the Federal Fund rate 1950s- 2010s