Question

1. What drives the value of a stock?

2. Is the current U.S. stock market over-valued or under-valued? Explain

Briefly detailed answers, 400 words for each answer at least, with references.

Thank you I really do appreciate you help

Answer 1

The value of stock drives by the many factors and some of the factors are as follows:

1.) Generally the value of stock affected due to the demand and supply, if the quantity of people are more who are buying stock (demand) than sell the stock (supply) price of the stock goes up and if more people wanted to sell the stock than buying the Supply goes up and which leads to the fall in prices.If it impacts the stock prices that it will also impact the value of the stock because the value of stock is calculated by (number of shares x price per share). The value of the stock is depending upon the investors buying or selling behaviour and it is also based of the fundamental factors as well as the technical factors, fundamental factors is based on the earnings of the company and profitability form selling and of goods and services and technical factors due to the trends of the stock prices like from charts, momentum and investors.

In short the factors which impacts the stock values:

a.) Financial health of company.

b.) Economic trends.

c.) Indexes

e.) Industry Information (information is a key to impact the value of stock).

Financial health of the company also impacts much to the stock values, if the company announces that they are not going to pay dividends in the coming year end then company's stock has less value and investor will invest more for a company due to the history that company earned strong profits.

Economic trends is very important factor that investors always keep in mind before investing to deal with stocks as they read newspapers to get knowledge about the economy signs if the economy is healthy it means that companies are making profits which leads to the rise in Gross domestic product (GDP) and if the economy suffers from the bad conditions and G.D.P also going down then the investor also suffers financially and could not be able to invest in the stock market easily.

Stock prices or the market is shown by the news reporters through the index. A stock includes the group of sub stocks, and whether its value is high or low reflects the combined price movement of the stocks in the index. Indices help investors to track market moves easily.

Industry information is also a important factor the investors get the information through the companies prospectus, if investors know that the industry is growing then they will invest more money into the stock and if contracting they will sell their stock or do not invest in these sectors.

Question no. 2)

Answer: The current U.S stock market is over-valued and the reasons of the over-valued is as follows:

Market valuations are an important factor but the relationship between the markets and valuations is not perfect and requires platform when thinking about what huge valuations mean for today's investor.

The only stock which are touching heights is the U.S stocks and now trading at 17 to 18 times forward earnings and 25 times trailing earnings all major stock indices outside the U.S.A but excluding Japan are down. This time the difference is wide and vast.

The two major factors due to which this major difference is there the stock market is dangerously over-valued.

Dividend yield and price-to-earning ratio

A p/e ratio calculates the value of stocks the same way a price-to-square foot ratio is an assessment of the value in real estate.If you’re not convinced by the p/e ratio difference, then you only have to look at dividend yields to see the difference there.

One of the biggest causes for worry may be the ratio of total U.S. stock market rise to GDP. The current bull market has nearly four time of U.S. stock prices, as measured by the S&P. As investor optimism about future corporate earnings growth has expanded during that time period, so have stock valuations.

The over-valuation of the U.S stock market is a positive as it is going up and cause the G.D.P to inflate. As in the current scenario all the international markets of the except one stock market of Japan are going down and U.S market is drastically touching heights and the due to the stock market overvalued the companies sell their shares at high rates and indices of the stock market are also high.

The U.S stock market over valued and the most of the investors are not happy due to the higher prices of the share. The investors want to put their money to the stock markets but not can't be able to invest due to the higher prices of the stocks of the U.S markets and the the P/E ratio is the major factor of increase the per share earning for the company and Dividend yield is the another major technique to know the profits of the coming year because the most of the companies are worried about the dividends payouts to the investors. More the profits the company earns more the payouts they will give to their share holders who invested in the stocks of the company.