Indicators are the key to understanding the stock market
Introduction
Targeting good stocks ahead of everyone else is the ultimate goal for meticulous investors, although achieving this and fulfilling your portfolio’s checklist is not easy. So where do you start?
Where to start?
The smartest investors understand the level of risk involved in picking individual stocks and investing in funds. They know that choosing the right stocks and funds is not straightforward, and even the most experienced fund managers who face many challenges find it difficult to identify the best stocks and funds before anyone else does.
Once these points are achieved, the ideal first step is to use economic indicators and stock market data to identify the best stocks and funds. Most high-ranked leading indicators are available for free, while aspiring analysts may expect dry and even academic readings, so getting help from a financial professional is a significant advantage.
However, those who persevere and regularly review the best leading indicators are much more likely to identify the best stocks and funds before other investors do.
Therefore, it makes sense for stock market investors to have a comprehensive understanding of how the economy works and how to measure economic activity. Below is a breakdown of key indicators that investors should know about:
Business Indicators
These monthly indicators track how successful companies sell their goods and services. Economists and investors closely monitor business inventories.
Gross Domestic Product
Gross Domestic Product (GDP) is a key economic indicator produced by the U.S. government. It provides the broadest measure of economic activity in the United States, making it the ultimate economic “report card.” GDP tracks performance across several economic areas: consumption, investment, government purchases, and net exports.
Consumer Price Index
The Consumer Price Index (CPI) is the best way to track inflation. The CPI classifies prices for a fixed list of goods and services over a specific month.
Unemployment Rate
The unemployment rate is prepared by the U.S. Department of Labor and, along with the GDP number, is an economic indicator for the country. It provides data on employment, hourly wages, and the unemployment rate in the United States. Economists consider the unemployment rate a “lagging” indicator, meaning it rises or falls after changes in economic activity.
Consumer Confidence
The Conference Board tracks consumer confidence in the country, based on monthly surveys conducted on about 3,000 American households.
Leading Economic Index
The Leading Economic Index tracks future economic activity. Typically, three consecutive monthly changes in the same direction, based on leading economic indicators, signal a specific trend in the U.S. economy. For example, negative data over three consecutive months could indicate a potential recession.
Definition of Stock Market Indicators
In general, a stock market index carries specific economic or market data that can be used to infer trends in the stock market and the economy.
There is no doubt that the U.S. economy and the stock market are dynamic and constantly changing. Utilizing economic and market indicators to capture a snapshot of where things stand and where they are heading can be immensely beneficial in giving investors an edge in selecting the best stocks and funds.
Most common stock market indexes track the performance of a particular stock or sector or the entire market. Investors looking to enrich their research can rely on these market indicators to assess the potential value of market sectors, indicators, and to take the pulse of the market and individual stocks and funds.
Major Common Stock Market Indicators
The Dow Jones Industrial Average: The Dow Jones Industrial Average is the most commonly used index to gauge the pulse of the U.S. stock market. It tracks 30 major stocks, including Apple, Coca-Cola, and McDonald’s.
The Index
S&P 500: The Standard & Poor’s 500 Index (also known as the S&P 500) tracks 500 widely traded large-cap stocks in the stock market. Many mutual funds and exchange-traded funds are based on the S&P 500.
Russell 2000 Index: The Russell 2000 Index tracks 2000 stocks of small-cap companies and is considered the benchmark index for small-cap stocks and funds.
Wilshire 5000 Index: This index monitors the U.S. stock market more broadly by tracking 5000 stocks listed on the country’s stock exchanges, including large, mid, and small companies.
Lehman Brothers Funds Indices: The Lehman Index tracks several categories of mutual funds, including growth, value, and sector funds.
Barclays Capital Aggregate Bond Index: This index tracks the fixed-income (bonds) markets in the country and covers several multi-bond market indices to generate a snapshot of the overall fixed market.
Investors looking to choose stocks, bonds, or funds should be cautious about relying too heavily on short-term views that can hinder long-term portfolio management plans. Instead, focus on your unique portfolio needs and your expectations for the distant future, and use your market research to identify stocks and funds that have the strength needed to remain in the portfolio.
By doing so, you will stay ahead of the crowd on Wall Street, and you will build some momentum and stability with your investment portfolio, time after time.
Source: https://www.thebalancemoney.com/how-to-spot-stock-trends-before-everyone-else-4159788
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