Question

Marion owns stock in a corporation that builds houses. He read in the finance pages of the newspaper today that the country has experienced two or more consecutive three-month periods of decline in the gross domestic product, that interest rates for home loans remain high, and that unemployment is rising. If you were his stockbroker, would you advise him to sell his stock?

1) Yes, because the decline in GDP, high interest rates, and rising unemployment indicate a negative outlook for the housing market.
2) No, because the decline in GDP, high interest rates, and rising unemployment may not directly impact the performance of the corporation.
3) Cannot be determined without further analysis of the corporation's financial health.
4) Not enough information provided to make a decision.

Answer 1

Marion should not immediately sell his stock based on macroeconomic indicators alone but should consider a detailed analysis of the corporation's financial health and resilience to the current economic conditions. Option 2 is the correct answer.

Step-by-step explanation:

The question of whether Marion should sell his stock in a corporation that builds houses in light of economic indicators such as a decline in GDP, high interest rates, and rising unemployment is complex and cannot be answered definitively without a more in-depth analysis of the specific corporation's financial health and market position. However, the finance pages are currently indicating that the country has experienced two or more consecutive three-month periods of decline in the gross domestic product (GDP), that interest rates for home loans remain high, and that unemployment is rising. While these factors may suggest a negative outlook for the housing market, they are not the sole determinants of the corporation's performance.

It's important to note that fluctuations in the stock market and changes in home valuation, such as the inflation in property value and shifts in consumer behavior, play a role in determining a company's performance. Furthermore, the increased use of credit and leveraging in real estate suggests heightened financial risk, which could have a reverberating effect on the housing industry.

Additional factors such as the impact of economic changes on consumer confidence, shifts in the home price index, and broader economic conditions, such as those illustrated by the US Department of Commerce-Bureau of Economic Analysis, which reported a GDP increase of 4.6 percent in the second quarter of 2014, should also be considered. Nonetheless, economic instability characterized by rising unemployment, high interest rates, and declining GDP typically suggests a cautious approach could be advisable. It is essential to evaluate the corporation's strengths, market strategy, and resilience to such economic pressures before making a final decision on stock investments.