The reason for rise in stock prices prior to the economy

"Actual anticipation than the economy" or to one of the law of stock price fluctuation "stock price is a leading indicator of economic" There is a saying such. Original of that stock, because it is what it is proportional to the profitability of the company, when the booming economy steadily, up, I to during the recession reverse I think that as sluggish.

In practice, however, stock prices the chances are very good that you will rise or fall in little earlier than economic trends. The financial crisis of late 2008 is still fresh in our minds, but the economy is full fiscal 2009 is at the bottom of the state, Japan The United States and the unemployment rate is worse, GDP growth rate has recorded a minus. However, say stock prices and, the Nikkei average in March 2009 turned to an upward trend in the bottom of became a 7000 yen cracking verge, in August we have recovered the milestone of 10,000 yen. Including the NY Dow average of the United States in the same way, most of the country stock markets of the world, have turned to the upward trend in without waiting for the signs of economic recovery.

This trend, the Great Depression and the 1970s oil shock of 1929, such as the IT bubble burst around 2000, has always happened in the recession. In Why is the stock prior to the economy? It will include two reasons can be broadly divided into.

The first reason is that the economic downturn is because produce "more than money" state. The recession, money is scare off from the stock market, will occur funds flight to safe assets, such as the cash-speed data deposits and government bonds. But the downturn, because the government is responsible for monetary easing (rate cuts), yield of deposit interest rates and government bonds will be very low.

Since human beings is greedy, because you do not increase the money in such a low interest rate, it is no longer bear to be long-running. But the real estate market, (since when the economy is not well real estate is not sold) and then you to rise later than the real economy, such as commodity market gold and crude oil, there is no income gains, such as stocks and real estate and government bonds. In other words, since any such financial instruments to recession expected yield is low, I state that investors hungry for profits is formed.

Erase legally eventually, fearfully To share money started gathering in the market, eventually the stock price hit rise at once to concentrate money and begin to be identified as "or accumulate to impair this opportunity!" To the bottom, economic recovery (= I previously rally is formed than rise) of the government of rate hikes and government bonds and real estate. In this way, investors are referred to as more than money the state can not move decent to some money, this thing is contributing cause of the rise of the stock market before the economic recovery. The world of finance has always repeat that "money over ⇒ bubble formation ⇒ collapse ⇒ more than money".

And another reason is the human psychological factors. Of that stock investments, but it is a make a profit by selling high and buying cheap, is why you want to buy a stock at a low price even a little. When the economy is in earnest to recover stock prices will rise, but rather than buy it from waiting for it, better to buy recession is followed by a state of an equity downturn, is more mean big profits can be expected.

For this reason, always works is bias to budge earlier than others in the stock market. A typical example is the ex-rights of the scene of many shareholders at the end of March. But it should it originally if ex-rights date most stock prices high, is to give a peak at 2-3 days before the majority of preferential stocks vesting date, after ex-rights in anticipation that the stock price will fall, it is advantageous even a little psychological bias that want to sell is the cause.