Five Stock Market Indicators To Monitor During A Recession

There are multiple Market indicators that investors should track during a recession. Market reports and indicators are those often-voluminous statistics put out by government agencies, non-profit organizations and even private companies. They provide measurements for evaluating the health of our economy, the latest business cycles and how consumers are spending and generally faring.

Various economic indicators are released daily, weekly, monthly and/or quarterly. However, no matter how boring it all sounds, all investors must make it a point to track economic indicators to understand the direction the market is headed. This understanding can sharpen investment decisions.

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1. Gross Domestic Product

GDP represents the market value of all final goods and services produced within a country during a given period. The figure is usually given in nominal and real formats, with real GDP adjusting for changes in monetary value. Given its vast breadth, this indicator is among the most-watched by the financial markets.

The expansion of a country’s GDP is indicative of a growing economy, while a contraction in GDP indicates a slowdown in a country’s economy. Meanwhile, a country’s projected GDP growth rate can be used to determine an appropriate level of sovereign debt or determine if companies operating within the country are likely to experience growth.

2. Employment rate

Employment is perhaps the most important indicator of the health of the economy. On the first Friday of each month, the U.S. Bureau of Labor Statistics releases two closely watched reports. These are tracked from month to month, and it’s important to know whether the numbers are going up, down, or sideways.

The financial markets carefully watch these employment indicators, especially in developed countries that generate most of their income from domestic consumer spending. A fall in employment is often followed by a fall in consumer spending, which can hurt GDP statistics and overall economic growth prospects.

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3. Consumer Price Index

CPI measures changes in the prices of consumer goods and services that are purchased by households. The index is a statistical estimate created by using prices from a sample of representative items collected periodically. Often times, this measure is used as a gauge of inflation, which can positively or negatively affect a country’s currency.

This index is timely because it is the first inflation measure available in the month. In addition, by watching crude prices, which are first in the chain of production trends, one can sometimes spot inflation in the pipeline, before it shows up in the CPI. The financial markets carefully watch CPI figures for signs of inflation.

4. Interest Rates

The impacts of interest rate on stock exchange provide important implications for monitory policy, risk management practices, financial securities valuation and government policy towards financial markets. When rates go up, the demand for stocks decreases because less risky assets like US Treasuries or corporate bonds decrease in price while producing more yield.

When rates go down, money becomes cheaper to access and the demand for risky assets like stocks increases. For a day trader, interest rates might not matter much. But if you want to keep an eye on long-term trends while trading the market, interest rates and their effect on stocks and bonds are something you need to be aware of.

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5. Investor Activity

The best time to invest in stocks is not when everyone is bullish, but when almost everyone is bearish. Buy when stocks are cheap. Hold until they go up. Therefore, readings of investor sentiment are important. A variety of indicators are published by large investment firms and research firms, which periodically poll their clients to determine market consensus.

Other important market indicators include the ratio of advances to declines and the number of new price highs and lows in the market. These readings indicate how healthy the overall stock market is and can provide confirmation as to the quality of a stock market advance or decline.

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