By Dominic Julian - Learning how the rest of the economy can guide your investments.
A market indicator is some other piece of information that feeds into the stock market and can have an affect on how confident investors feel about the market overall. The most common market indicators include: Employment, Gross Domestic Product (GDP), Inflation, and even lumber data.
One of the main lagging indicators of how well the economy is preforming is how many individuals are unemployed. As more people are unemployed, those individuals do not recieve paychecks and thus have less money to put back into the economy in the form of purchases/consumption. The Bureau of Labor Statistics releases this information monthly.
GDP is another crucial indicator of how the market has been doing. GDP is the sum of all economic activity in a span of time - this includes conumer spending, imports/exports, government spending, and investment. A high GDP report increases investor optimism about the future.
In 1970, a gallon of gas cost $0.36. Today a gallon costs around $3.00. This increase in prices is very normal and is known as inflation. A little bit of inflation is healthy for the economy, but if prices rise drastically then it could raise major red flags for investors. The CPI tracks inflation and is released on a monthly basis.
When people have money they are more likely to buy houses, thus when they are optimistic about the market they tend to buy houses. To build houses requires a lot of wood, so lumber prices are actually another way for investors to get a sneak peak at the overall confidence level of indivduals in the market.
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