Understanding of the performance of the financial market is essential for enabling an investor to form sound investment decisions. One of the tools that enables an analyst to establish his/her decisions is data analysis. This paper gives a report of the financial market from the Wall Street Journal. In particular, it makes a weekly and annual comparison for (2018-2017) to establish the market changes and trends. The most significant changes in the financial market have been the changes in the bond prices, the value of the US dollar, value of gold, value of oil, performance of the international stock markets, and the volatility index (VIX).
Changes in Bond Prices
The bond prices in the United States had an increase of 0.49% from 2017 to 2018. During the week, there was a change of 0.08%. Overall, however, there has been a decline in the bond performance since the YTD total return for the bonds is -2.19.
Shape of Yield Curve
The shape of the yield curve during this period was inverted. The inverted shape of the yield curve was affected by the overall decline in the bond prices.
Value of US Dollar
The value of the Euro to US dollar increased by 14.13% from 2018 to 2017. The YTD increased by 2.34% during the same period. However, there was a decrease of 0.17% during the week. Overall, the Euro to US dollar has an increase in its continuation trend. This performance shows that the dollar’s value is decreasing relative to that of the Euro. The increase in the price of the dollar relative to the price of the Euro is due to the improved performance of the economy of countries that use the Euro. This improved performance has led to the increase in the demand for the Euro.
Value of Gold
The value of gold increased by 5.17% during the 2017 to 2018 period. During this week, the value of gold increased by 0.17%. Finally, the value of gold has shown that it was increasing. Gold is usually considered a safe investment, which makes most investors prefer investing in it when the market is volatile. Since on the overall, the 2017-2018 had an increase in increase in the VIX; most investors may have demanded gold, which made its price to increase by 5.17% during this period.
Value of Oil
During the 2017-2018 period, the value of oil increased by 17.83%. The year to date (YTD) change was an increase of 6.11%. The value of oil also increased by 3.57% during the week (The Wall Street Journal, 2018). Regarding continuation of trend, oil had a general increase. The increase in the value of the oil can be partly explained by the increased global economic performance, which results in more demand for oil.
International Stock Market
The best performing international stock market was Bovespa Index (Brazil). This stock had an increase of 14.03% during the week. Give the stock’s performance, Bovespa Index has an increasing continuation of trend. The worst performing international stock market was DJ Select REIT Index. The change during this week was a decline of 9.3%. Overall, DJ Select REIT Index has a declining continuation of trend.
Volatility Index (VIX)
The volatility index (VIX) from 2017 to 2018 increased by 4.84. However, the change during the week was a decline 4.67 percent (Yahoo Finance, 2018). Overall, there was a decline in VIX during the period.
Various factors affect the performance of financial markets. The main causes of changes in the financial market are economic announcements, Federal Reserve policies, fiscal policy, supply/demand considerations, political events, developments in the financial service industry, psychological factors, and international factors. The main causes of the financial changes are explained below.
Federal Reserve Policy
On December 13th, 2017, the United States government decided to raise the Federal Reserve rate. Inevitably, this rate had the effect of increasing the prevailing US administered rates for 2018. Further, it also increased the continuation trend for the US administered rates. An increase in Federal Reserve rates also shows that the government is trying to reduce the excess cash in the market and control the inflation rates (Bloomberg, 2017). Therefore, the government usually complements these efforts by increasing the bond prices. Accordingly, the bond prices for 2018 increased by 0.49% when compared to that of 2017.
The increase in the prices of oil can be explained by the increase in the global demand for oil. According to the World Bank, the global economic growth for 2018 will be 3.1 percent, due to the greater than expected economic performance of 2018. The economic recovery during this period will result in more investments in manufacturing and trade, both of which use much oil (The World Bank, 2018). Due to the high demand for oil during this period, there has been an increase in the value of oil.
The value of gold has also increased due to its increased demand among manufacturers. With the enhanced economic outlook, there has been an increase in the demand for gold (The World Bank, 2018). Gold is an essential component used in the electronics industry, especially in the manufacture of micro integrated circuit boards.
Political events have also played a major role in the performance of the financial market. In late 2016, there were presidential elections in the United States. The effects of the Brexit vote were still being felt in most of the Eurozone. These effects spread into 2017 and affected the financial performance during that period. In the Eurozone, for example, they have almost successfully finalized the Brexit process, which has increased in the value of the Euro, due to enhanced investors’ confidence. The American financial market has finally stabilized after the 2016 elections, which has also increased investors’ confidence and made the market less volatile.
The performance of the Bovespa Index (Brazil) is mostly due to the economic stability in Brazil. After four consecutive years of recession, the Brazilian economy has enjoyed two years of economic growth, driven by the recovery of its domestic and export markets. According to FocusEconomics (2018), Brazil will have a growth rate of 2.5% in 2018. This growth has increased investors’ confidence in the country, which has led to the improvement increase in the performance of the Bovespa Index.
Overall, the financial markets indicate that investors are optimistic, and they believe there will be an increase in economic growth. In the United States, the government is implementing fiscal and monetary policies that will enhance economic growth, by slightly increasing the Federal Reserve rate to control inflation rates. However, the government has ensured that this rate is still low since the Federal Reserve is still interested in enhancing the country’s economic performance, by encouraging investments and access to credit.
Bloomberg. (2017). Fed increases interest rate and raises growth forecast for 2018. Retrieved from http://fortune.com/2017/12/13/federal-reserve-rate-rises-2018/.
FocusEconomics. (2018). Economic forecasts from the world’s leading economists. Retrieved from https://www.focus-economics.com/countries/brazil.
The Wall Street Journal. (2018). Market data center. Retrieved from http://www.wsj.com/mdc/public/page/2_3023-latetrading2-latetrading.html?mod=topnav_2_3020.
The World Bank. (2018). Global economic prospects: Broad-based upturn, but for how long? Retrieved from http://www.worldbank.org/en/publication/global-economic-prospects.
Yahoo Finance. (2018). CBOE Volatility Index (VIX). Retrieved from https://finance.yahoo.com/quote/%5EVIX/.