Question

Andy is interested in investing in the stock market, but having studied the Great Depression in school, she is afraid she could lose all of her money. She reads through the finance pages of the newspaper and sees that unemployment has dropped to the lowest level it has been in the past ten years, new businesses are opening, housing sales are up because interest rates are level, and the national debt is decreasing. If the economy is her only concern about buying stock, should she buy stock?

Answer 1

In the crisis of 1929 markets were in euphoria with the 1920s when there was great prosperity and record increase in manufacturing output. However, there was a crash on the NY Stock Exchange and many investors lost their money. Today the world is different, there are regulatory mechanisms that the government uses to protect investors and maintain the financial health of the economy.

If Andy's only concern is the economy, she can buy the stock because the most important indicators are good, especially the fact that the internal debt is decreasing. The described economy forms a scenario of economic warming, where consumption is high thanks to low interest rates, new business is thriving and the unemployment rate is low. However, even in a favorable scenario, she should be cautious and use the information she has available. It must be kept informed of the macroeconomic scenario to predict any possibility of crisis. This can be done, among other options, by the Federal Reserve Bulletins.