Research Assessment 1

Sanya Maini

Mr. Walters

ISM 2

September 6, 2019

Citation:

“Business Finance.” Britannica School, Encyclopædia Britannica, Inc., 25 Mar. 2011,

school.eb.com/levels/high/article/business-finance/106110?opensearch=pe%20ratio.

Accessed 6 Sept. 2019

The Future of the Stock Market

In recent times, the US stock market has been immensely strong and seems to be

indestructible. This phenomenon has been explained by the increase in technological innovations

and the consequential globalization that has occurred. These factors have presented businesses

with increased opportunities to grow their operations, making them stronger than previous

establishments. What magnifies this success of the economy is its comparisons to the state of the

economy in the past decades. In just the past 25 years, our economy has suffered two recessions:

the dot-com crash and the 2008 recession. Comparing the triggers of those recessions to our

current economy raises substantial questions about the future of the US stock market.

The first indicator is the price by earnings, or PE, ratio. This ratio indicates the price that

investors are willing to pay for a stock since it’s an indicator of the earnings one can gain from a

stock. The “normal ratio” is said to be around 15. Whenever the ratio hits 30, double the normal
ratio, the ratio drops. If investors are not willing to pay much for a stock, it results in the

downfall of the economy. Predictably, the only three times the ratio has crossed thirty in

recorded financial history has been around 1929, 2000, and 2008 (Bauman), which coincides

with the Great Depression, dot-com crash, and 2008 recession, respectively. However, the

current PE ratio also exceeds thirty. This presents an area of concern for investors since the

current situation matches those of previous disastrous market crashes.

This article gave me an introduction to how investors analyze the markets in order to

make educated decisions about their investments. This has provided me with a base of what I

want to achieve this semester- I want to analyze and learn more about the different factors that

analysts look at in order to predict what happens in the stock market. I believe that knowledge of

the markets is an essential skill to have as a financial planner since clients look towards their

planners for investment advice. Additionally, it helps a financial planner gain more insight into

how the products they are recommending to clients will perform long-term.

Predicting the performance of the stock market is one of the most valuable skills in the

financial field. Nonetheless, an investor can never fully grasp the skill since the markets are so

volatile. However, analyzing factors like the PE ratio provides a foundation for predictions and

alleviates most of the ambiguity related to investing. This is why I believe analyzing these

factors will be extremely beneficial. My analysis of this article has made me question how

prevalent the knowledge of these factors is- are they taught in colleges or do investors learn them

on the job. Ted Bauman, a renowned financial professional, published this article for the purpose

of marketing his firm. If these factors were well-known, they wouldn’t attract clientele. My

second question stems from this as well- if these factors aren’t common knowledge in the
financial field, where can I learn more about them? Overall, this article has greatly influenced

my perspective on investing and my goals for what I wish to achieve this year.

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