Fundamental Market Indicators Every Finance Expert Should Know

Rusty -Tweed

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.

A Guide to Key Market Indicators

7.29.2016 | A Guide to Key Market Indicators by Rusty Tweed team

There are several key market indicators for the housing market, which when put together can give you a fuller picture of the housing market’s bill of health.  Whether you are a homeowner looking to sell, a home buyer looking to make a purchase or an investor following the broader economy, here is a quick guide.

1. Sales of Homes

Every month, the National Association of Realtors puts together a report on the number of actual used homes sold each month, including co-ops, condos and single-family houses. The report includes previous month and previous year sales, in addition to data on regional sales performances.

Find the latest report here: http://www.realtor.org/research.nsf/pages/EHSdata

2. Sales of New Homes

The U.S. Census Bureau puts out a quarterly report specifically focused on new residential sales. It includes the number of new homes sold around the country based on the number of signed sales contracts. The report examines sales by region and by price point, for example, sales under $150,000 and higher than $750,000.

In addition to the monthly report on the number of used homes sold, the National Association of Realtors also produces a monthly report on pending home sales. The report suggests the expected volume of upcoming sales closings.

3. Home Sales Reports from Major States

Realtor groups in major states such as California, Texas and Illinois, release periodical local reports on the home prices and sales activities in their states. These have a local feel and give detailed indications of how each major state is performing.

4. Construction

Every month, the U.S. Census Bureau releases a report on construction spending activity nationwide, providing a monthly estimate of the total dollar value of construction work performed in the U.S. It breaks down residential vs. nonresidential spending, in addition to breaking out public vs. private spending.

In a separate monthly government report, residential construction activity around the country is examined. This is achieved via the number of permits issued and stats about the number of houses that builders have begun work on.

5. NAHB’s Housing Market Index

The National Association of Home Builders (NAHB) releases a monthly NAHB/Wells Fargo Housing Market Index, which examines the amount of confidence builders are feeling about the single-family housing market. The NAHB performs a monthly survey of home builders in order to obtain input on their thoughts on the current state of sales, and ascertain their expectations for the next six months.

6. Price Indices

There are numerous price indices available that provide hints about general housing market sentiment and buyer interest. These include the government’s House Price Index, which takes input from Fannie Mae and Freddie Mac to follow single-family home prices; Standard & Poors’ S&P/Case Shiller Home Price Index and CoreLogic’s home price index that looks at prices nationwide.

References for A Guide to Key Market Indicators by Rusty Tweed team:

http://www.realtor.org/research.nsf/pages/EHSdata

https://www.census.gov/construction/nrs/index.html

https://www.census.gov/construction/c30/c30index.html

http://www.nahb.org/en/research/housing-economics/housing-indexes/housing-market-index.aspx

http://www.fhfa.gov/DataTools/Downloads/Pages/House-Price-Index.aspx

http://us.spindices.com/index-family/real-estate/sp-corelogic-case-shiller