Targeting good stocks funds ahead of the crowd is the Holy Grail for diligent investors—although it’s no easy task to check off your portfolio “to do” list.
Where to Start?
The savviest investors know in advance the level of risk involved in individual stock and fund-related investment selection. They also know that picking the right stocks and funds isn’t easy, and that even the most battle-hardened professional money manager struggles to identify the best stocks and funds—before anyone else catches on.
Once those items are crossed off, a great place to start is by using economic and stock market indicators to pinpoint the best stocks and funds. Most of the top-rated benchmark indicators come free of charge, while newly-minted research analysts can expect a dry, and even academic read, so getting help from a financial professional is a big help.
Yet those who persevere and review the best benchmark indicators on a regular basis are vastly more likely to identify the best stocks and funds before other investors have a clue.
Consequently, it makes sense for investors in the stock market to have a thorough understanding of how the economy works and how economic activity is measured. Here’s a breakdown of the key indicators investors should know about:
Business Inventories: This monthly index tracks how successful companies are selling their goods and services. Business inventories are watched closely by economists and investors alike.
Gross Domestic Product: The gross domestic product (GDP) is a key economic indicator that’s produced by the U.S. government. GDP offers the broadest barometer of U.S. economic activity, making it the ultimate U.S. economic “report card.” The GDP tracks performance in several economic areas: consumption, investment, government purchases and net exports.
Consumer Price Index (CPI): The consumer price index (CPI) is deemed by economists as the best way to track inflation. The CPI ranks prices for a fixed-list of goods and services over a given month.
Unemployment Index: The employment index, compiled by the U.S. Labor Department, is, along with the GDP number, the nation’s economic indicator. It provides data on employment, hourly earnings and the U.S. jobless rate. The unemployment rate is viewed by economists as a “lagging indicator,” meaning it rises or declines after variations in economic activity.
Consumer Confidence: The Conference Board tracks the nation’s consumer confidence index, based on monthly queries of approximately 3,000 U.S. households.
Index of Leading Economic Indicators: The index of leading economic indicators tracks future economic activity. Usually, three straight monthly changes in the same direction, based on LEI data, indicates a specific trend in the U.S. economy. For instance, negative data over three consecutive months could mean a potential recession.
Stock Market Indicators Defined
By and large, a stock market indicator holds specific economic or market data that can be used to discern stock market and economic trends.
Make no mistake, both the U.S. economy and the stock market are dynamic and always changing. Using economic and market indicators to capture a snapshot in time of where things stand—and where they’re headed—can be an enormous benefit in giving investors a leg up on the best stocks and funds.
The most pervasive stock market indicators track the performance of an index or market average of a given stock, sector or the entire market, overall. Investors looking to add to their research bonafides can leverage these market indicators to gauge the potential value of market segments and benchmarks, to take the pulse of the market, and individual stocks and funds.
Here Are the Most Common Stock Market Indicators
Dow Jones Industrial Average: The DJIA is the most commonly used indicator to check the pulse of the U.S. stock market. It tracks 30 major stocks, including Apple, Coca Cola and McDonald's.
S&P 500 Index: The Standard & Poor’s 500 Index (also known as the S&P 500) monitors 500 widely traded stocks in the large-cap stock market category. Multiple exchange traded funds and mutual funds are based on the S&P 500.
Russell 2000: The Russell 2000 follows 2,000 widely-traded small company stocks, and is considered the benchmark index for small cap stocks and funds.
Wilshire 5000: This stock market index casts its net wider, monitoring 5,000 stocks listed on the nation’s stock market exchanges, including large, medium and small companies alike.
Lipper Fund Indexes: The Lipper Index tracks multiple mutual fund categories, including growth, value and sector funds.
Barclays Capital Aggregate Bond Index: This index tracks the nation’s fixed-income (bond) markets, covering multiple bond market indices, to generate a snapshot of the entire fixed income market.
Investors researching their next stock, bond or fund selection need to guard against overly relying on a short-term mindset that can get in the way of their long-term portfolio management plan. Instead, focus on your own unique portfolio needs and expectations for the long haul, and use your market research to identify stocks and funds that possess some much-needed portfolio staying power.
Do that and you’ll stay ahead of the Wall Street crowd, and build some momentum and stability with your investment portfolio, time and time again.