Stock Prices Tumble
INTRODUCTION
Some factors change the demand for a stock so that people are willing to buy more or less at every possible price. Some factors change the supply of a stock so that people are willing to sell more or less at every possible price. Unexpected news that benefits a company can increase the price of its stock. Unexpected news that harms a company can decrease the price of its stock.
PROCESS
Use the chart "Good News, Bad News" below to evaluate the factors in this worksheet.
| Factor |
Good News (Stock Prices Go Up) |
Bad News (Stock Prices Go Down) |
|
1. Company's Economic Health |
Investors expect future production, sales, and profits to improve. Advances in technology are reported that reduce production costs. The company develops new popular products. The company hires more skilled and responsible managers and workers. |
Investors expect future production, sales, and profits to decline. Products lose popularity. Someone files a damaging lawsuit against the company. The company's workers go on strike. |
|
2. Industry's Economic Health |
Rapid growth is expected in the industry. Better supply of resources that companies use to make their products. Industry exports more goods and services to other countries. Congress passes a law that will lead to more sales for the industry. |
The industry becomes less important in the economy. Government makes stricter rules for the industry that increase production costs. Consumers buy imports instead of products made by the industry in our country. |
|
3. Country's Economic Health |
Gross Domestic Product rises. (GDP is the sum of the prices of all finished goods and services made in a nation during a year.) Unemployment rates fall, and more people have jobs. Interest rates fall. (Interest rates are the cost of borrowing money.) |
Gross Domestic Product goes down, and a recession occurs. Interest rates go up. Workers have fewer basic skills. |
|
4. Our Government, Our Nation, and the World |
Fighting nations agree on a peace settlement. People elect a president they think will be more favorable to business. |
A major oil-producing nation reduces its supply of oil to the world. |
|
5. Stock Market Conditions |
People think we are in a bull market (period of rising stock prices that lasts months or even years). |
People think we are in a bear market (period of falling stock prices that lasts months or even years). |
Read the Online Focus:Bearing Down
What happened to stock prices on Monday, August 31st? What does the author think is responsible for the decline in prices?
Read the following excerpt from the NY Times:
September 3, 1998
Stocks Extend Losses; Dow Down 50
Filed at 10:43 a.m. EDT
By The Associated Press
NEW YORK (AP) -- Stocks extended their losses in skittish trading this morning, with the Dow industrials quickly sinking 150 points before recovering some of the lost ground. The selloff came as shares tumbled in Europe and followed a mixed day in Asian markets.
By 10:40 a.m. EDT, the Dow Jones industrial average was down 50 points, bouncing back from a loss of 150.87 in the opening minutes of trading. However, the average of 30 big companies remained off 110.45 at 7,671.92 at midmorning, adding to Wednesday's late 45-point retreat. The Dow had been up as much as 125 points Wednesday, but the gains evaporated in late selling.
There are fears that Asia's yearlong economic crisis is worsening and that Russia's financial collapse will spread into Europe and Latin America, further dragging down world economies and corporate profits.
Adapted from Schug et al "Learning from the Market", HOW DO DOMESTIC AND INTERNATIONAL EVENTS INFLUENCE THE BUYING AND SELLING OF STOCKS?"
Which industries do you predict will be hardest hit by the Russian financial collapse? Find ticker symbols for companies within the industry.
Check your prediction by viewing stock prices at the Big Charts: Historical Quotes , and look at historical charts.
