How macroeconomic factors influence investor behavior and stock prices
Jason Baires
Co-Presenters: Individual Presentation
College: College of Business and Public Management
Major: Finance
Faculty Research Mentor: Huaibing Yu
Abstract:
The stock market plays a crucial role in assessing a nation's economic health, with significant declines often signaling potential recessions. Macroeconomic factors such as GDP growth, inflation, interest rates, and unemployment directly influence stock market performance, making it essential for governments and policymakers to monitor these variables closely. This research analyzes the effects of macroeconomic factors on the stock market using multiple regression analysis, historical data, and empirical research. Empirical evidence from monthly data on the S&P 500 price index suggests that among the macroeconomic variables evaluated, inflation rates is the most useful predictors of recessions in the U.S. stock market. Lower inflation helps stabilize the economy, reduces business costs, and supports consumer spending, which can boost corporate earnings and market valuations. Similarly, Lower interest rates make borrowing more affordable, encouraging business expansion and increasing investor preference for stocks over fixed-income assets. By examining these relationships, this study provides insights into how economic conditions drive market behavior. The findings will help finance students and researchers better understand economic forces and develop informed investment strategies. Future research could expand by comparing the impact of macroeconomic indicators across different economies worldwide.