In the stock market, normally, would stock prices of companies in a segment reflect their business cycles?
Yes. For example, when the stock market is at the low point of the cycle, the economy will tend to be weak and expected to get worse. There will be a perception that interest rates will have to fall and, on the back of this expectation, interest-rate sensitive stocks will start to perform better. What are the factors that link the economy with the stock market? Macro forces such as money supply and interest rates. The rating of earnings, the share of profits as a ratio of GDP and, finally, structural factors can distort the correlation between development in the economy and the stock market. Until fairly recently, China’s very strong GDP growth was not reflected in the performance of the domestic stock markets due to these ‘structural’ factors. Recessions can occur due to excessive and irregular policy adjustments. What are the other aspects that can also result in recession in an economy? Downturns in the business cycles and ‘external’ economic shocks. If bird flu were to mutate to hu
