Economic Factors and Business Information

The business cycle moves through expansion, peak, contraction, and trough; contractions bring falling output and rising unemployment.

Leading indicators (such as building permits and stock prices) change before the economy; lagging indicators (such as the unemployment rate) change after.

The Consumer Price Index measures inflation through the price of a basket of consumer goods and services.

An inverted yield curve, with short-term rates above long-term rates, is often watched as a potential recession signal.

The Federal Reserve conducts monetary policy through the FOMC using open market operations and interest rate targets.

Fiscal policy, involving taxing and spending, is set by Congress and the Treasury, not the Federal Reserve.

Monetarists emphasize the money supply as the driver of inflation, while Keynesians emphasize aggregate demand and fiscal policy.

Central banks generally cut rates in downturns to stimulate activity and raise rates to cool inflation.

The current ratio (current assets divided by current liabilities) measures short-term liquidity.

Return on equity, leverage ratios, and interest coverage each measure a different aspect of financial health.

Fundamental analysis studies earnings, revenues, and competitive position, while technical analysis studies price and volume history.

Financial statements provide the raw data used to estimate a security's intrinsic value.

Present value discounts future cash flows to today; a higher discount rate or longer horizon lowers present value.

Future value grows with higher interest rates and more frequent compounding over more periods.

Standard deviation measures total volatility, beta measures systematic risk relative to the market, and correlation measures co-movement between assets.

Total return combines price change and reinvested income, and real return subtracts inflation from the nominal return.