I want to support rebuilding the nation's economy. Therefore, I am lowering my bookkeeping hourly rates from $50/hour to $40/hour, until further notice. - Manuel
I want to support rebuilding the nation's economy. Therefore, I am lowering my bookkeeping hourly rates from $50/hour to $40/hour, until further notice. - Manuel
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How does the news potentially impact stock and bond prices?

I chose to examine Netflix (NFLX) as my stock. When studying Yahoo Finance, I found an article describing how Netflix has not paid any taxes to Vietnam on its revenues from Vietnam subscribers. However, Netflix is planning to set up a method for tax collection with Vietnam. Furthermore, according to the same article, Vietnam also approved a cybersecurity law two years prior that requires foreign companies doing business in Vietnam to store data locally in Vietnam. However, Netflix does not have current plans to store its data in Vietnam or open an office (Reuters, 2020). Based on this initial information, I expect the stock price to lower after November 10th, 2020, partially due to this somewhat lacking news.

After reviewing Netflix’s market prices, I found the Netflix stock return two weeks prior to the news—from October 27th, 2020 to November 9th, 2020—to be -3.7695%. Regarding the return of the Netflix stock for November 10th, 2020 was +1.9726%. Finally, the Netflix stock return two weeks after the news—from November 11th, 2020 to November 25th, 2020—was -1.1737% (Yahoo Finance, 2020). Given this data, this roughly lines up with my expectations that perhaps the Vietnam tax issue news influenced a decreased stock price. Furthermore, I am curious about what led to a reduced stock price in the two weeks before November 10th, 2020.

For examining the Treasury Yield 10 Years (^TNX), I chose an article about an announcement from the Federal Reserve Chairman Jerome Powell. In this article, Jerome Powell explains that the central bank plans to keep interest rates low and close to zero to help stimulate the United States economy from the COVID-19 pandemic. Additionally, the Federal Reserve also intends to maintain an easy monetary policy to help the economy recover (Cheung, 2020). According to our textbook, on page 379, when market interest rates rise, the bond prices fall, and vice versa (Gitman, Joehnk, & Smart, 2017). For example, with the Federal Interest Rates proceeding to stay low—as explained by the Yahoo Finance article with Powell, I expect the Treasury Bond Prices to increase after this news.

When crunching the numbers in Excel and using Yahoo Finance’s historical data for ^TNX, I found that the percentage change for two weeks before the news—from November 2nd, 2020 to November 16th, 2020—was +6.71%. Regarding the percentage change of the Treasury Yield 10 Years for November 17th, 2020 was -0.68%. Finally, the Treasury Yield 10 Years' percentage change two weeks after the news—from November 18th, 2020 to December 1st, 2020—was +5.90% (Yahoo Finance, 2020). This increase met with my expectations considering the news from the Federal Reserve Chairman. Additionally, this treasury bond price increase makes sense because if the federal market interest rates lower, then suddenly treasury bonds with higher interest rates are worth more; therefore, this development follows the market interest rate vs. bond prices relationship.

 

References

Cheung, B. (2020, 11 17). Powell: Fed committed to loose money, low rates for 'as long as it takes' as COVID-19 surges. Retrieved from Yahoo Finance: https://finance.yahoo.com/news/powell-fed-to-keep-low-interest-rates-policy-accommodative-as-long-as-it-takes-190109871.html

Gitman, L., Joehnk, M., & Smart, S. (2017). Fudamentals of Investing. Pearson.

Reuters. (2020, 11 10). Vietnam scolds Netflix, Apple, for lack of tax payments. Retrieved from Yahoo Finance: https://finance.yahoo.com/news/vietnam-scolds-netflix-apple-lack-114550541.html

Yahoo Finance. (2020). CBOE Interest Rate 10 Year T No - Yahoo Finance. Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/%5ETNX?p=^TNX&.tsrc=fin-srch

Yahoo Finance. (2020). Netflix, Inc. - Yahoo Finance. Retrieved from Yahoo Finance: https://finance.yahoo.com/quote/NFLX?p=NFLX


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