What Moves the Market? A Look at Key Economic Indicators

Have you ever wondered what some of the main factors are behind big moves in the stock market? Sure, it’s easy to pinpoint things like earnings reports and news headlines that can influence the prices of individual companies in the short term, but what really makes the overall stock market tick? The truth is that there are several economic indicators that have a big impact on how the market performs. If you want to stay ahead of the curve, it’s a great idea to spend some time familiarizing yourself with them.

Investing and economics go hand in hand. By learning all about how to gauge the overall health of our economy, you can also gain a leg-up in the stock market. Below, we are going to walk you through a few key economic indicators that can move the stock market. After reading this article, you will have a better idea of what types of economic reports to look out for and how they might impact your investment portfolio.

1. Consumer Activity

When it comes down to it, consumers are what really drives the economy. When consumer activity changes, it directly impacts corporate profits. If consumers spend more, the earnings for major corporations and companies typically will experience growth as well. On the other hand, if consumers are not confident in the economy or their jobs, they will tend to spend less which can affect corporate profits in a negative way. One report you can look to for insight into consumer activity is the Consumer Confidence Index, which details how people are feeling about their economic prospects. Consumer activity is an indicator that can definitely drive the market up or down, so make sure you keep up with its monthly reports.

2. Employment

Another important economic indicator to keep an eye on is employment. Each month, the U.S. Bureau of Labor Statistics provides a report that details current unemployment levels in the nation. These reports can cause big moves in the stock market since they are considered a good gauge of the health of the economy. If jobless claims are increasing, it is normally viewed as a bad thing for the economy. Make sure you check the report released the first Friday of the month to get a good idea about how employment numbers might factor into the stock market’s moves.

3. Inflation

You’ve probably already heard about this economic indicator that has a big impact on the stock market. Inflation is a very important economic indicator to be conscious of because it directly affects the consumer’s purchasing power and the return they expect to receive on an investment. It is also closely related to the Federal Reserve’s monetary policy, which is extremely important to watch. When inflation is on an uptick, it may lead to increased interest rates and less lending. Inflation is also important for corporations to keep track of, as lower inflation helps company costs decrease while increasing profits.  The Consumer Price Index is a good indicator to check out if you are trying to get an estimate about inflation. It’s a report that tracks changes in the prices of ordinary goods like clothing and medical care and can provide a nice estimate of inflation.

4. GDP

Gross domestic product is another major indicator that can help investors project long-term market trends. You can think of GDP as the country’s total output of creating goods and services over a specific time period. When GDP is increasing, it gives investors more confidence in the stock market and the growth prospects of companies. This is due to the fact that GDP growth is often viewed by the market as the equivalent of economic growth. Make sure you keep an eye on GDP and year over year GDP growth to gauge the current status of the economy. However, keep in mind that GDP is not a perfect reflection of stock market potential, particularly since the federal reserve can affect GDP with programs like quantitative easing.

These key economic indicators are all major factors in making the stock market move. The logic behind using them to make investment decisions is that the indicators that signify economic growth and prosperity are likely to fuel growth in the stock market. Make sure that you keep up with these reports and understand how they can impact your portfolio to stay ahead of the curve with your investing choices.