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Fundamental Analysis

A fundamental analysis of the economy tells us that the first stimulus program did not create enough jobs and that the jobs it created or preserved were largely in government. Thus the president and VP are pushing a news jobs program, $8 for mass transit in 31 states said to be capable of producing 20,000 per billion invested. The rational is that part of the cost of the package will be paid by taxing the salaries of new hires. A private group, the Milken Institute is pushing for another $400 billion plus in new infrastructure projects, a lowered corporate tax rate, and decreased export controls. If this package passes a fundamental analysis of the stock market might predict renewed life.

The stock market seems to be in pause mode despite a rise in GDP. Traders cite technical factors for the current market uncertainty. The question is always if technical analysis or fundamental analysis will accurately predict the near and long term future of the stock market. After looking at the 8 stock market basics for beginner investors the next place to look at fundamental versus technical analysis.

Fundamental analysis is based upon financial statements of a company, a review of its management, and its relative strength in its market sector. In a broader view fundamental analysis looks at the economy, production such as GDP, broad measures of earnings, interest rates, and the national currency versus those of competitors.

In stock investing fundamentals look a company’s stock value and tries to predict whether it will go up or down and how much based upon projected business performance. This view of stocks looks closely at company management and how the company makes and executes business decisions. Credit risk is part of this as well just how well products by competitors are doing.

A basic part of fundamental analysis is the Gross Domestic Product (GDP). A more detailed and accurate part for a company is its own production numbers, products in the pipeline, history of success in bringing successful, profitable products on line, and its ability to penetrate untapped domestic and foreign markets.

Analyzing fundamentals is how to make sense of stock market news. Looking at another possible stimulus plan fundamentals would say that projects like a number of high speed rail projects would benefit railroads connecting major cities and companies that have already develop high speed rail systems.

Analysis of market fundamentals would have said last year that a stimulus program that promoted government jobs would have done less for the economy that one that promoted small businesses as well as factor and labor jobs. Both fundamental analysis and technical analysis have their place in the investing universe. The practical point is for the investor to learn each skill and know when to use one or the other to best profit from the stock market.

In the coming year investors will need to look at stocks that have done well and decide if fundamentals indicate that they will continue to profit in the recovery. Investors also need to watch technical indicators as some are predicting an M shaped recovery with a big dip in the middle. As usual everyone has an opinion on the market. However, the individual investor gets to pick his or her stock or stick with a market index fund. The advantage of an individual stock is that a given stock may have very strong fundamentals even when the overall economy and stock market are in the doldrums.

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