Impacts of Macroeconomic Variables on U.S. Stock Market

Abstract

The stock market plays a crucial role in the modern economic and financial system. America is an ideal case study for exploring the relationship between macroeconomic variables and asset pricing. This paper analyses three major macroeconomic variables—GDP, inflation and Interest rate (monetary policy) and analyzes their influence on the performance of the U.S. stock market. This article first reviews the historical evolution of the U.S. stock market, illustrating how technology revolution, regulatory framework and macroeconomy interact with each other to shape the market evolution. Furthermore, this article interprets the impact mechanisms of each macroeconomic factor based on the DCF model. The core finding is that the relationship between macroeconomic factors and the stock market is a nuanced one. Strong GDP growth or high inflation might not necessarily benefit the stock market, as their impact ultimately depends on how they shape the market expectations regarding monetary policy. In the end, this paper provides strategic insights for investors making asset allocations, risk management and strategic positioning decisions under macroeconomic uncertainty.