What are catalyzing events?​

Catalyzing events (aside from the topic of this investment training) are events that positively or negatively impact financial markets. These can be planned events (meetings, presentation of quarterly results, takeover bids or ICOs…) or random events (news of the discovery of a new deposit, weather catastrophes, geopolitical tensions…). These events are what end up influencing opinion and, consequently, the decisions that investors can make regarding their portfolios.

When these events are planned, such as earnings season, Fed meetings and related events, the market prepares in advance by speculating about where the market will go at the time the statements are made. Let’s see what are the catalyzing events that we must take into account:

1. Central Bank Meetings

We have been able to see in recent months that what the governors of the Central Banks say ends up shaking the investment markets. The meetings of these institutions usually discuss topics such as the current situation of the economy (inflation, growth expectations and fiscal policies (interest rates or bond purchases). The great catalyst for these meetings is usually decisions on interest rates. of the currency of the Central Bank.

Interest rates are one of the data that generates the most volatility in the markets, since they end up directly influencing the cost of companies and the profits they generate in the future. When these meetings occur, investors speculate about where the governors of these institutions will direct their words, proposing scenarios based on the hypothetical statements they give. In turn, quantitative expansions ( QE or Quantitative Expansion in English) also strongly influence the economy.

2. Data on the performance of economies

To analyze the current situation of a specific region or economy, there is no better way to position yourself than by consulting data on the performance of the main economies. These data are usually planned to be presented monthly, quarterly or annually.

These are usually data such as the underlying CPI, retail sales, non-agricultural payrolls, manufacturing PMI, industrial production, unemployment rate, trade balance, new claims for unemployment benefits, a country’s GDP… In the end, these data tell us They are showing how a specific region is developing.

3. News on the opening/closing of the markets

News is one of the main catalysts for investment markets. But not all of them end up having the same impact, and in particular there are some that strongly shake the markets. News that is revealed before the markets open or after they close are great catalysts.

This news is usually given in these situations precisely to provoke (or avoid) volatile movements, as happens with the presentation of quarterly results or new products. In the following graph we see how a year ago Tesla (TSLA) closed its price with a slight loss of 0.10%, but benefited by 13.19% after the closing.

4. Launch of new products

Par excellence is one of the great catalytic events of this investment training. As we well know, the expectations that are generated when the presentation of a new product is announced are very influential.

In the end, it is the buyers and investors themselves who, with their opinion, will end up influencing the price of said company. For example, usually when Apple (AAPL) announces the launch of a new product, its shares skyrocket at the time of the announcement and continue progressive growth until the day of said launch.

5. Quarterly earnings season

As we have commented in the third paragraph of this investment training, the news is the main catalysts for the markets. And what can cause more volatility in stocks than the presentation of quarterly results? When the quarterly results season begins, investment in stocks prepares to measure the companies’ balance sheets and their growth expectations. If they have not been able to perform sufficiently, these results reveal the situation and end up affecting the price of said assets. At the same time, the presentation of unexpected results (good or bad) also ends up increasing the volatility of said stock.

6. OPEC meetings or IEA crude inventories

Another of our beloved events that end up shaking the markets. OPEC meetings or the IEA crude oil inventory report are two events that directly impact the price of oil. Consequently, these events may end up expanding the effects of the announcements to other asset classes. This is due to the dependence of economies on black gold, both for industrial, technological and economic development.

A cut in production can usually be translated as a bullish sign, given that it becomes more scarce and consequently causes its prices to rise. Although we also have to take into account the global economic situation, given that an economic slowdown can also end up affecting its price.

7. Stock Splits

Stock splits are a way to redistribute a company’s shares, usually dividing the shares without altering their value. As a general rule, stocks that do Splits tend to outperform the market over the trailing 12 months. This is because splits reduce the price of shares, making them more attractive to new investors.

It is also believed that these events are a good indicator for a stock, given that lower prices can lead a company to be eligible to enter indices such as the S&P 500, which require not having a very high price. For example, Amazon (AMZN) performed a 20:1 split of its shares, which reduced its price from $3,000 per share to $150.

8. Natural disasters

Natural disasters are events that are not (not all) under human control. There are times when events such as violent storms, torrential rains that cause floods, periods of drought or similar are completely random. These events may strengthen the price of some commodity sectors, such as agricultural commodities. For example, the current situation has reduced the global wheat and cereal supply chain due to the war in Russia and Ukraine.

These two countries, being two of the world’s largest exporters of wheat and cereals, have caused the prices of agricultural raw materials to skyrocket to levels that were not at all expected.

9. OPA/ICO

Takeover bids (Public Offering of Shares) are large events that generate a lot of volatility around the asset presented. At the same time, ICOs (Initial Coin Offering) are great catalysts for price fluctuations in the cryptocurrency market.

For example, in March 2021 the Coinbase (COIN) takeover bid was held, which managed to exceed 10 billion market capitalization during its first day of trading, seeing its price skyrocket. Unfortunately, Coinbase shares are directly exposed to cryptocurrencies, which is why their movements are correlated with the situation of the crypto asset ecosystem.

10. Dividends

Dividends are the main attraction of investing in stocks. We can confirm this in the words of the great value investor, Warren Buffett, who establishes as a motto for investing in a company that it offers dividends for its shareholders. This type of event can happen due to three situations; incorporation of dividend payments, increase/reduction of the dividend payment and the day of dividend distribution.

Usually, the day that dividends are distributed are usually days in which the company that distributes them will see its company’s shares fall. This is because when dividends are distributed they are usually liquidated to obtain profits, which adds more shares in circulation and consequently makes them lose value.

A curious dividend event was the one that Coca Cola (KO) experienced a few years ago, when Cristiano Ronaldo pushed aside a bottle of the company’s soft drink at a live press conference. Immediately, social networks were ablaze with speculation that this action caused Coca Cola shares to fall. But it was not like that… the bug has influence but not that much, this fall occurred due to the distribution of dividends from the company.

Conclusions from this investment training

After having finished this investment training, we have reviewed the most important catalytic events to take into account for our portfolio. It is true that it is widely conceived that trading during these events is quite risky, given that we are playing against events that may have different hypotheses around them. However, if we learn about the behavior of the markets during these events, they can become great catalysts for potential profits for our portfolio.

Source: economiafinanzas