There are many things that may happen in the world that could affect the stock market as a whole, as well as individual stocks. The stock market reacts well to things such as low inflation, increasing Gross National Product (GNP), and other positive news in the economy. The market does not react well to signs that inflation is on the rise or unemployment rising.
Today¡¯s inflation rate is on the rise due to hurricane Katrina and high gas prices. ¡°Consumer prices rose at the fastest pace in more than 25 years last month, spurred by a surge in energy prices to record highs after Hurricane Katrina.¡±
Hurricane Katrina has also affected unemployment in the U.S. After the hurricane was said and done it cost the U.S. over 500,000 jobs, and the unemployment rate rose from 4.9% to 5.1%. September was the first month since May 2003 in which U.S. payrolls declined. Payrolls however are expected to start growing again soon. However, on a brighter note, economists say that without hurricane Katrina¡¯s effects, the number of jobs would have been increased by about 200,000 in September, which is the monthly average this year.
Consumer confidence fell to a two year low as well when it fell from 87.5 in September to 85 in October, the lowest it has been since October 2003. While this may be a large decrease, some economists say that it may not matter much because people seem to be borrowing and spending more money no matter how little confidence they have in the economy.
The industrial production (based on output from U.S factories, mines and utilities) of the U.S. has fallen drastically as well after hurricane Katrina. The fall was quite substantial at 1.3%, to the lowest it has been since January of 1982. This drop was because of a decline in oil and gas output after hurricane Katrina. While industrial production is down, manufacturing has increased substantially with the highest rating in over a year. One reason for this may be because there is sometimes a panic in a Hurricane situation, so people may actually order more than they need to make sure they do in fact get what they need.
Retail sales in the past month have increased 0.2%, which is better than a loss, but below economists expectations. This low increase was mainly due to the drop in auto sales. If you do not take into account the auto sales the retail sales have increased 1.1% which was actually better than the economist¡¯s expectations of 0.8%.
The food industry is very much a defensive stock, because no matter what people have to eat. While defensive stocks may be hurt in the downtimes they will not experience the wrath of the market as much as a technological company would. It works the same in the opposite way as well; if the economy is doing great we are not going to see people buying huge amounts of cheese or milk.
The threat of new entrants into the market is seemingly small. While there are opportunities to get into the market by specializing in one or a few products, it is very hard for a company to get into the market and compete at the level of Kraft, or Unilever. Some competitors that are out there do however have the ability to expand. There are opportunities for expansion in their own industry, as well as outside of the industry. Proctor and Gamble is a good example of a company that has found a way to successfully combine products in many different industries. The retail food industry has an industry average P/E ratio of 20.41, while Kraft has a similar P/E of 17.13. One of Kraft¡¯s largest competitors Unilever has a P/E ratio of 27.86. The lower the P/E ratio the more risky the stock is and compared to the market. Kraft is above the market average P/E but just below the Industry average. This means that Kraft is less risky than most stocks in the market but compared to the food industry it is slightly riskier. Kraft¡¯s market cap is 47 billion while its top competitor...
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