Socioeconomic Factors Effect on Stocks

Michael Niemeyer

Co-Presenters: Noah Mea

College: Hennings College of Science Mathematics and Technology

Major: BS.COMPUTER/SCI

Faculty Research Mentor: Huang, Ching-Yu  

Abstract:

Title: Analyzing the Relationship Between U.S. Macroeconomic Indicators and Stock Market ReturnsAuthors: Noah Mea and Michael Niemeyer, Department of Computer Science and Technology, Kean UniversityAbstract:The goal of this project is to examine how macroeconomic indicators affect U.S stock market returns. Macroeconomic indicators are statistical measures that reflect the overall health and performance of an economy. Specifically, this study focuses on inflation, unemployment, federal funds rates, and possibly other factors that we are currently looking into (e.g., GDP). Much of the existing literature is based on earlier empirical analyses (e.g., Gertler & Grinols, 1982) and frequently examines macroeconomic variables in isolation, such as unemployment, rather than their joint effects on stock market returns (e.g., Gonzalo & Taamouti, 2017). To improve upon prior analysis, in our study, we combine data on the federal funds rate, unemployment rate, and consumer price index (CPI) from the Federal Reserve Bank (FRED) and compare these series to monthly S&P 500 historical prices from January 1948 to December 2024. We extract the data into Python, transform it by aligning dates, convert CPI to inflation rates, and finally load it into a combined dataset for analysis. We analyze the combined effect of all variables on stock returns, utilize a multiple linear regression model to evaluate the predictive relationship between macroeconomic indicators and stock returns, and evaluate the value of each independent variable as a predictor of stock returns. We found a negative association between inflation spikes and stock market returns. We also noticed a lagged relationship between unemployment and market performance. This research contributes to a better understanding of how inflation, unemployment, and monetary policy interact to affect stock market performance, providing insights relevant to economic forecasting and investment strategies.Keywords: Macroeconomic Indicators, Stock Market, Quantitative Analysis