What macroeconomic factors influence prices of securities, and how do they influence on securities prices?

Question

For instance how interest rates and inflation influence on share prices and bond prices?

Answer 1

Stock and bonds are correlated strongly.

Higher interest rates mean that bonds become less expensive and more interesting to hold. This pushes down stock prices, when people sell stocks to get the cash to buy bonds.

Higher interest rates are caused by an expectance of coming higher inflation. However inflation is also a sign of an expanding economy, which is good for stocks.

So normally what we get is a cycle:
- stocks boom in expectance of an expanding economy
- bonds go lower because of the perceived fear of inflation
- the more attractive interest rates attract money away from the stockmarket
- interest rates go down again, which permits the economy to expand again.

Answer 2

It's really a big topic... With Treasury bonds, the relationship is relatively simple; higher inflation means lower prices. With corporate bonds and stocks, it gets really complicated. On the one hand, inflation impacts the discount rate, just like it does for Treasury bonds. On the other hand, higher inflation may signal better earnings prospects (inflation is usually lower during recessions than it is during expansions). Which of the two effects prevails, depends on their relative magnitude...

Answer 3

Inflation may increase or decrease buying power. With lower inflation rate, people have more money in their pocket inturn buying more stuffs that support the US economy which 70% of GDP influence by consumers which is huge.With less money, consumer spend less and in turn businesses are affected that account 30% of GDP like inventory increase,may reduce the workforce in turn the people in turn having no money to buy stuffs. that how the macro economic cycle work
Interested rate work the same way that. when the interested rate low businesses and consumer can borrow more for less that in turn they have more money in their pocket that help increase spending inturn support jobs,wages,invesment that will expand the economy
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