Study Guide for Technical Analysis Explained Fifth Edition, 5th Edition

31

WHY INTEREST RATES AFFECT THE STOCK MARKET

Answers

1. C.

2. B. Interest rates almost always lead stock market bottoms, but there are rare exceptions, such as 1987. Since this was not associated with a recession, it could be argued that the relationship did not fall into the norm. However, the 1987 crash did meet the magnitude qualification for a bear market but not the duration.

3. D.

4. B. Changes in rates also affect the cost of capital and, therefore, affect corporate profits directly.

5. A = C

B = B

C = A

6. money market, Federal Reserve, interest rates

7. B.

8. C. Once the rate has been raised three times, the market becomes vulnerable, but the leads in each cycle since the inauguration of the Federal Reserve have varied considerably ...