Working Paper

Decoding Equity Market Reactions to Macroeconomic News

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;

JEL Classification: E44; E47; G14;

https://doi.org/10.17016/FEDS.2025.007

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2025-01-17

Number: 2025-007