Chapter 15

Performing “Top-Down” Fundamental Analysis

IN THIS CHAPTER

Bullet Realizing how the economy’s condition can be a factor in your fundamental analysis

Bullet Understanding how the cycles of the economy play a role in a company’s profitability

Bullet Analyzing and accessing key economic data released by the government

Bullet Using “leading” economic indicators to help you gain a better idea of a company’s future

Even the best company or investment can be tripped up by a lousy economy. This truth was demonstrated in brutal fashion during the stock market decline that began in 2020, as prices of all sorts of stocks were punished due to the shutting down of the economy because of the COVID-19 outbreak. Some stocks suffered with little regard to what fundamental analysis would tell you. Similarly, stocks benefitted greatly from the multiyear period of falling short-term interest rates that didn’t really end until 2022.

Here’s the harsh reality: Companies are subject to the vagaries of the broad economy. It’s not good enough to just understand a company inside and out. You need to understand the broader ...

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