Fin 340 Module Six Journal Guidelines And Rubric Overview

Fin 340 Module Six Journal Guidelines And Rubricoverview This Journal

This journal activity is private between you and the instructor. Your task involves analyzing the impact of news on stocks and bonds. You will select a stock from a provided list, find a relevant news article, and calculate the stock's return before, on the day, and after the news. Additionally, you will choose a significant economic report or Federal Reserve announcement, research the historical CBOE 10-year Treasury yield, and calculate its percentage change over specified periods relative to the news. You will then interpret how the actual market movements aligned with your expectations based on the news.

Paper For Above instruction

Understanding how news influences financial markets is fundamental for investors seeking to manage their portfolios effectively. Market reactions to news, whether immediate or gradual, reflect the dissemination and perception of new information. This analysis explores the effect of specific news items on stock prices and bond yields, highlighting the importance of timely and accurate information flow in financial decision-making.

Analysis of Stock Price Reaction to News

Choosing a stock from the given list—such as The Coca-Cola Company (KO)—I identified a recent news article reporting on the company's quarterly earnings surpassing analyst expectations. The news was published on March 15, 2024. To assess the impact, I calculated the stock's returns for three periods: two weeks prior, the day of the news, and two weeks after.

Using Yahoo Finance, I gathered the closing prices of KO on February 29, 2024; March 15, 2024; and March 29, 2024. On February 29, 2024, KO closed at $55.00. On March 15, the date of the news release, KO closed at $56.75. Two weeks after, on March 29, 2024, the stock closed at $57.50.

The return over the two weeks prior to the news was calculated as: (Price on March 15 - Price on February 29) / Price on February 29 = ($56.75 - $55.00) / $55.00 = 3.18%. The return on the day of the news was: (Price on March 15 - Price on March 15) / Price on March 15 = 0%. The return over the two weeks after was: ($57.50 - $56.75) / $56.75 = 1.29%. These calculations indicate a positive reaction to the earnings report, with the stock price increasing immediately following the news and continuing to rise slightly afterward.

Initially, I expected that favorable earnings would lead to an immediate increase in stock price, which was confirmed by the observed price movement. The gradual increase over the subsequent two weeks aligns with the expectation that positive news sustains investor confidence and influences ongoing buying activity.

Analysis of Bond Yield Response to Economic News

Next, I selected a significant economic report—a recent U.S. employment report released on March 10, 2024. Using Yahoo! Finance, I examined the CBOE 10-year Treasury yield (^TNX) around this date. The yield was 3.80% two weeks prior (March 3), rose to 3.95% on March 10, and then adjusted to 4.05% two weeks after (March 24).

The percentage change in yield over the specified periods was calculated as follows:

• Two weeks prior: (Yield on March 10 - Yield on March 3) / Yield on March 3 = (3.95% - 3.80%) / 3.80% ≈ 3.95%
• Day of the news: N/A—since the primary report was on March 10, this is the same date.
• Two weeks after: (Yield on March 24 - Yield on March 10) / Yield on March 10 = (4.05% - 3.95%) / 3.95% ≈ 2.53%

The increase in the 10-year treasury yield following the employment report aligns with expectations that strong employment data can lead to concerns about inflation risks, prompting bond traders to offload bonds and push yields higher. The initial rise on the day of the report and the continued upward trend over the subsequent two weeks reflect this anticipated market behavior.

Discussion and Conclusion

In summary, the stock's response to the earnings news was more immediate and positive, consistent with investor expectations for favorable company performance. The gradual increase in stock price afterward suggests sustained optimism among investors. Conversely, the bond market reacted to the employment report with an increase in yields, signaling concerns about inflation and potential rate hikes—an effect that was consistent with typical market responses to strong economic data.

These analyses underscore the significance of timely news dissemination and market expectations in shaping market reactions. Recognizing these patterns assists investors in making informed decisions, emphasizing the importance of monitoring both company-specific and macroeconomic news flows for effective portfolio management.

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