The world is not flat anymore. Otherwise, how can one stock market is very bullish, while another stock market is very bearish. What are the drivers for stock market up and downs?
Intuitionly, major drivers for stock prices are investors expectations. Investors' expectation drive their investment decisions to buy or sell stocks. From the long term, stocks prices are driven by their returns, if return is high, more investors will rush into this stock and drive the return lower. The source for returns are: 1.Dividends; 2.Repurchase of Shares;3.Accumulated Capital Gains; and 4.P/E multiple changes.
So for equity there is a formula to evaluate equity return, which is:
%change of total equity value = %change of GDP +%change of Share of profit in GDP + %change in P/E
Equity return = %Dividends + %Change of share numbers + % change of GDP + %change of shares of profit in GDP + %change in P/E multiples
Major markets:
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