Decoding Equity Market Reactions to Macroeconomic News

Michele Modugno and Berardino Palazzo

No 2025-007, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The equity market’s reaction to macroeconomic news is consistent with the propagation of news into the real economy. We embody all the macro news in an activity news index and a price news index that together explain 34% of the quarterly stock price returns variation. When those indexes capture a stream of favorable macroeconomic surprises, publicly traded firms experience increases in revenues, profitability, financing, and investment activities. The firm-level resultslead up to an expansion of the real side of the whole U.S. economy. Our findings, taken together, show that stock prices’ reactions to macro news have a strong association with firm-level and economy-wide growth.

Keywords: Macroeconomic News; Equity Markets; Real Activity (search for similar items in EconPapers)
JEL-codes: E44 E47 G14 (search for similar items in EconPapers)
Pages: 39 p.
Date: 2025-01-17
New Economics Papers: this item is included in nep-fdg and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-07

DOI: 10.17016/FEDS.2025.007

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