Examining equity market’s response to inflation and unemployment news in South Africa

Abstract

This study investigates the response of equity prices to inflation and unemployment news in South Africa by providing evidence at both aggregate and industry levels. The findings indicate that inflation news has a negative impact on the equity returns of the JSE All Share Index, Basic Materials, Consumer Goods, Financials, and Technology during economic contractions. Inflation news also has a negative impact on equity returns of Consumer Goods during economic expansions. Furthermore, the study reveals that unemployment negatively impacts the stock returns of the JSE All Share Index, Financials, Industrials, Consumer Services and Consumer Goods during economic expansions. The equity returns of Basic Materials are negatively affected by unemployment news during contractions and expansions. Health Care equity returns are also negatively impacted by unemployment news during economic contractions. The study finds that unemployment news has a greater impact on Financials, whereas inflation news has a greater impact on Technology. Policymakers are advised to promote economic diversification, particularly in industries that exhibit significant negative impacts during economic contractions, such as Basic Materials, Financials, Consumer Goods, and Technology. Moreover, implementing risk- mitigation strategies and developing hedging mechanisms can safeguard against inflation-related challenges. Employment support programs are crucial to counter the negative impact of unemployment news on various assets, including the JSE All Share Index, Consumer Goods, Basic Materials, Financials, Industrials, and Consumer Services, particularly during expansions. Furthermore, industry-specific policies tailored to vulnerable industries may include targeted or regulatory incentives. Continuous market monitoring and ensuring timely access to accurate information is crucial.