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Select Sector: Healthcare Financials The financial sector is one of the most crucial and critical components within the overall picture of any country's economy. Its importance is unquestionable, as it plays a critical role in both creating and facilitating the flow of resources in a country. Financial markets have a direct impact on key economic indicators such as gross domestic product (GDP), consumer demand, investment, employment, inflation and interest rates. It also influences the functioning of other aspects of government including the regulation of financial institutions and supervision of credit risk management. As implied by the name, the financial sector deals with all the banking products and activities that facilitate the functioning of companies and the provision of financial services to individuals. It therefore includes bank stocks, bonds, savings accounts, securities, and financial derivatives such as currency and commodity markets. All these financial products are traded on stock exchanges that facilitate trading between different entities that participate in the exchange. Financials also include non-financial businesses such as insurance, mutual funds, asset management and asset protection. The sub-sector also comprises various special purpose vehicles that are designed to provide financial products to specific segments of society such as senior citizens, minors and start-ups. During the recent financial crisis, the U.S. economy suffered significantly from the loss of financial resources, resulting in the retrenchment of industrial sectors and the decline of millions of jobs. In reaction to the crisis, numerous changes were implemented within the U.S. banking system and at the same time new regulations were imposed as well. These regulations primarily consisted of changes in the composition of the key players in the banking system, the introduction of regulatory capital requirements, and the creation of regulatory frameworks for the over-all supervision of banks. Many changes were introduced to strengthen the financial strength of the banking system and protect the economy against future shocks. Among these, one of the most important and yet relatively minor regulations is the requirement of holding more assets primarily by banks of the insured sort (in the form of depositaries of banks). Apart from the above-mentioned regulation, there were other significant actions taken during the recent financial crisis to reinforce the strength of the financial sector. Besides recapitalizing the financial institutions, the government also sought to infuse higher funds into the market. One of the most effective measures adopted by the authorities was the encouragement of credit risk metrics in banking. Banks were encouraged to adopt additional and stronger quality measures for improving the quality of financial risk management in order to enhance and increase the financial sector's resilience to shocks. In addition, higher sensitivity to changes in the wholesale price index (WPI) was also encouraged as a measure to strengthen the financial sector's ability to absorb shocks in the face of abrupt or unexpected changes in wholesale prices. Apart from this, the government also intervened actively in the financial sector through the Federal Reserve System. The most prominent measures taken by the Federal Reserve included the creation of the National MPIPs or Primary Money Market and the Enhanced Security Portfolio, both of which helped in the overall stabilization of the financial institutions. However, the major move towards rescuing the financial sector during the post nineteen thirties crisis was the government's contribution towards bailouts of financial institutions supported by the National Mortgage Association (NHA). While providing guarantees for loans extended by the NHA, the government also provided guarantees for those loans extended by the Fannie Mae and Freddie Mac mortgage giants. Through these measures, the United States government was able to rescue many of its most important financial institutions and subsequently strengthen the overall economy. Considering the importance of finance in our society, it comes as no surprise that there are two stocks in the New York Stock Exchange which contribute significantly to the overall value of the financial sector in the U.S. The NYSE and the NASDAQ both have a large chunk of the pie in the healthcare industry. Although the two companies together represent less than twenty percent of the entire market, healthcare stock is one of the most volatile and sensitive segments on the stock market. This has further added to the volatility of the healthcare sector and has made it all the more important for investors to take their time before they dip into the healthcare sector. The two stocks that contribute to the overall value of the financial sector in the U.S. are the NYSE and the NASDAQ. While both companies are valued in the same way, their shares tend to vary greatly based on the direction that their respective companies are taking. For example, the NYSE has slightly more volatile, higher risk companies listed on their stock list whereas the NASDAQ has a wide variety of small, medium, and large companies listed under its blue chip umbrella. Although the NASDAQ tends to offer slightly more stability to its investors, the NYSE takes advantage of opportunities that are presented on a short term basis. The two stocks act as a pull and push strategy for healthcare sector traders. The top performing Financials stocks on the NYSE consist of two companies - Morgan Stanley and JP Morgan Chase. These two companies collectively represent approximately forty percent of the overall value of the financial sector in the United States. It is these companies that have helped to lift the fortunes of many small cap investors and brokerages alike and have encouraged more of them to get involved in the stock markets. While investing in stocks may require some risk, it is worth noting that the healthcare sector provides ample room for earning some decent profits.
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