Market Indicators That All Finance Experts Should Be Looking At

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Finance experts have to look at a wide variety of metrics to do their jobs and properly understand trends in the economy. They have to be aware of both macroeconomic and microeconomic factors at the company level in order to make these analyses. Here are three of the most critical market indicators that any financial expert should know in order to do their jobs.

Volatility

Volatility is perhaps the most important factor that any financial expert should know. This concept is the clearest way to understand how an individual can predict the movements of financial markets. Volatility is measured by the VIX index and other factors. In many ways, volatility is more damaging than a simple downturn in the market. Financial experts know how to transfer their assets and pick counter-cyclical industries if they see that a downturn is coming.

They are not able to make those same bets if there is a considerable amount of volatility in one or more sectors. Knowing volatility is helpful for understanding what factors influence the decisions that financial experts make. One decision that many experts have to make is whether or not they want to take short-term or long-term positions in securities.

Having a short-term outlook may push financial experts to recommend more short sales and limits on trades. Financial experts also may focus more on the bond or real estate markets than stock markets at times of high volatility. High volatility often means a greater chance of losing money for anyone invested in the stock market. Times of steady growth are the best possible times for investment and often do not go along with high ratings on the VIX index.

Value Pprojections

Value projections are the most common market indicators that most individuals use to understand markets. They are the essential facts behind the performance of companies. Most companies release a wide variety of statistics about their performance over the previous year or quarter. But they also issue predictions about how those same companies will perform over the next year. These predictions are more informative to a financial expert than the previous year’s numbers because they help show expectations and assumptions by professionals from a wide variety of companies.

Expectations and assumptions about trends in the market drive the market more than almost any other fundamental. Financial experts can buy, sell, and hold based directly on these predictions. Their job is to show the predictions that matter and the predictions that are based on poor forecasts or guidance. By picking the most influential ideas about the performance of the stock market, a financial expert can use value projections to greatly aid their analyses.

Real Estate

Financial experts need to make sure that they are considering other asset classes outside of bond and stock markets. One of the most common other asset classes to consider is real estate. A wide variety of new, used, individual, and commercial real estate metrics is released every month. This information can point to the success of consumer spending and the economy in general. Real estate is vastly more influential than information about nearly every other industry. Buying a home is often the most consequential purchase that any family will make. It involves a transfer of hundreds of thousands of dollars over a period of years or even decades. As a result, moves in this market show the financial ideas and security of millions of Americans.

Every financial expert needs to become as familiar with this market as with any other. They need to better understand how the real estate market influences the amount of money that individuals spend on technology products and staples. In addition, financial experts need to learn the amount of time it takes for moves in the real estate market to translate to moves in equities markets. Such an understanding is critical for financial experts to make recommendations about the prices of stocks or the performance of the bond market.

No finance expert can perfectly predict every movement of the market. But following critical financial indicators can help ensure that an individual is as informed about markets and market developments as possible. Knowing about volatility and other asset classes helps experts stay informed and make financial plans that are likely to generate considerable returns over a period of time.

Fundamental Market Indicators Every Finance Expert Should Know

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Most people want to make money in the stock and bond markets. The markets provide the preferred investment path for retirement savings, emergency funds, and home down payments. But many would-be investors stay on the sidelines. Having seen the heavy losses imposed by market corrections, they choose to keep their money in the bank.

With low-interest rates and inflation an ever-present reality, leaving money in the bank presents the highest risk of all. Inflation will always devalue cash savings, eventually leaving the saver with severely diminished spending power. Just noting the difference in the cost of housing, vehicles, and everyday items over the last few years demonstrate this truth.

The key to successful investing lies in understanding what moves the stock and bond markets. To gain from market appreciation and guard against losses, investors, both large and small, must actively manage their holdings. When indicators show the markets are primed to stay strong, investors should buy more stocks and consider growth-oriented plays. Signs of deteriorating
conditions should signal investors to sell a portion of their holdings and move the proceeds into cash equivalents. The money remaining in stocks should be kept in safer, more conservative stocks that are known to hold up during economic and market declines.

If calling the market’s direction were easy, we’d all invest like Warren Buffet. While no one can predict all of the market ups and down on a daily basis, investment pros are able to read the overall trends in the market and determine when broad increases and declines are imminent. They key is following the fundamental market indicators and knowing what they mean in terms of market direction. Here are the fundamental market indicators every financial expert should know.

Unemployment Reports

Though no single indicator can determine market direction, if one could, the unemployment situation would be it. Employment underpins the American economy. Since the vast majority of Americans receive most or all of their income from employment, a strong economy and a strong stock market are dependent on a low unemployment rate.

As explained in Investopedia, corporate profits rely on strong employment. When large numbers of Americans are out of work, corporate profits decline. People simply stop making non-essential purchases. When the situation gets bad enough, people stop making essential purchases as well.

Part of predicting the direction in the economy rests on understanding the state of the job market. To aid investors, the government releases two jobs reports each month: the household survey on unemployment and the unemployment insurance claims report. The household survey captures a
broader swathe of the job market because it includes those who are ineligible for unemployment insurance; however, because the jobless claims report has a long historical record, its movements can rely on the show the overall state of the job market.

Inflation indicators

As mentioned, inflation is the enemy of any saver. The goal of any investor is to beat the rate of inflation each year. Inflation also moves the market.

The Federal Reserve’s mission is to promote economic growth while taming inflation. As economies heat up, so does inflation. The government wants growth from productivity, not price increases from inflation. Because of this, the Fed tries to keep inflation in check by altering interest rates. When the economy needs a boost, it lowers interest rates. As inflation takes hold, it ups interest rates.

What the fed does with interest rates moves the markets. Investment pros monitor inflation indicators in order to gauge what the fed will do with interest rates. The Consumer Price Index (CPI) indicates the rate of inflation for consumer goods, while the Producer Price Index (PPI) shows inflation in the cost of making goods. Both reports should be monitored. A rise in PPI usually translates into an increase in the CPI as producers pass on their rising costs to
consumers.

Consumer Confidence

How consumers feel about the economy indicates their spending habits in the coming months. Thus, consumer confidence is a leading market indicator. Markets stay strong when consumer confidence is high. When consumers stop spending, corporate profits fall.

To gauge consumer confidence, watch the Consumer Confidence Index (CCI). When this index falls, a weaker market often follows. Retail sales also provide insight.

The Housing Market

Housing is a giant part of the American economy. Smart investors know that the state of the housing market affects the stock and bond markets. Though housing prices and construction activity vary greatly by region, the overall housing market provides clues into the health of the American economy. By watching the reports on housing starts and building permits each month, investors determine the strength or weakness of the housing market.

Investing is a tricky endeavor. No person can call the direction of the market correctly all the time on a short-term basis; however, knowledgeable investors are able to predict broad, long-term trends. The key is monitoring these key economic indicators.