Why is your article relevant? Articulate the reasons for relevancy.
The article “ Stocks have been swinging wildly for weeks. Here’s why they often don’t make sense” by Thomas Heath from the Washington Post published on April 10, 2020 is relevant to the concept of market interest rates because it illustrates how the financial markets particularly behave during times of a global crisis. The article is particular about the stock market movements during the onset of the Corona Virus pandemic in the Unites States. The author elaborates how the market swings is usually a predictor of the future economic situation in the wake of economic and environmental change.
The author further points out how swings in the stock market indicate an optimistic future for the economy as exhibited by the Standard & Poor’s 500-stock index, an indicator of performance of the 500 largest companies in America. This index showed incredible positive movement which was ironical in the midst of a global crisis, a demonstration that millions of investors saw light at the end of the tunnel from the pandemic.
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Another key reason for relevancy of the article, is that it expresses the importance of understanding operations of financial markets and factors that affect it. The author samples opinions from investors and managers of financial institutions and the common perception that emerges is that stocks movements are dependent on anticipated future not present economic situation. It further demonstrates how these predictions based on market movements have often turned out to be accurate in the past.
What are the relationship(s) between the chapter concept(s) and your article and analyze the relationship(s)?
One of the key relationships of the article and the chapter concepts is the operations of capital markets and how financial institutions respond to crisis demonstrated in chapter one. In the overview of chapter one, discussions are made on operations and structures of financial markets. An analysis of historical events and global financial and environmental crisis that shaped these structures takes center focus in the chapter. This relates to the article since the author gives a description of how the behavior of the financial market during another major crisis.
Knowledge and understanding of the nature financial markets is important in understanding how financial institutions operate to manage portfolio risk especially during a crisis. Decisions that financial institutions make in trading stocks, are clear indication of the global economic direction (Foo, 2017). Apart from the knowledge of market operation, historical events should also guide the decision-making process. Some of the major events the chapter refers to are the housing market collapse of 2008 and the Brexit vote in the United Kingdom. The trends in the market during the corona virus pandemic show that these past events have been instrumental in investment decision of financial institutions and individual as illustrated by the article.
What is the impact of the relationship to the investment policy of the firm, and/or individual investor?
Investment firms and individuals should understand that cooperate stocks as instruments of trade in a capital markets, move in anticipation of future not current economic situation. This understand should be an important factor in guiding their investment policy especially during times of major crisis. A study of past events is critical to investors in conceptualizing this understanding. Statistically, observations of stock market indices have proven that market trends have more often than not, been accurate in determining the course of the economy. Markets have proven high degree of efficacy in determining economic stability (Lairson, 2013). This concept of the capital market as a forward driven discounting mechanism when applied in investment policy will significantly contribute to the success of an investor.
Foo, J & Witkowska, D. (2017). A Comparison of Global Financial Market Recovery after the 2008 Global Financial Crisis . Folia Oeconomica Stetinensia. https//doi.org/10.1515/foli-2017-0009.
Heath, T. (2020, April 20). Stocks have been swinging wildly for weeks. Here’s why they often don’t make sense. The Washington Post. https://www.washingtonpost.com/business/2020/04/10/why-stock-markets-swing-coronavirus/
Lairson, T. (2013). The Global Financial Crisis: Governments, Banks and Markets. https://www.researchgate.net/publication/259231026_The_Global_Financial_Crisis_Governments_Banks_and_Markets