With the complexity of the financial markets, there are many interconnected factors that affect it, both economic and financial. Some of these include economic indicators, political events, overall market sentiment, and company/industry-specific events.
- Economic Trends
Economic indicators include key statistics about the economy that reflects the monetary and fiscal policies. These show the performance of the economy to help understand and project future market movements. Key indicators include the gross domestic product ratios, inflation rates, interest rates, and data that reflect labor market conditions, such as the unemployment rate. As well as those that are related to consumer and investor activities such as retail sales, consumer confidence, and others.
- Investor Confidence
In a growing economy, investors are confident and tend to pay premiums on stocks. Conversely, in a contracting economy, investors should take caution and prepare a plan to hedge their funds during a recession and leverage any investment opportunity. Measurements of sentiment also plays a vital role in shaping the market trends, such as the CBOE Volatility Index (VIX), also known as the ‘fear’ index.
- Political Events
Political events are also considered gauges for changes in the market. We have seen this very recently with the war in Ukraine that caused global equity-market drawdowns, lasting for several months.
- Company/Industry Fundamentals
Company and industry-specific events are another critical indicator. It is important to study a company’s fundamentals, where an investor learns about the firm’s full financial performance historically and in relation to its peers in the industry. Also, it is critical to watch for any specific industry trends that may shift the demand or supply for these companies.
All of these factors are interconnected whereby one will almost certainly affect the other. Therefore, it is important to have a broad view on the global news in order to build a well-informed trading strategy.
The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice. Any view expressed does not constitute a personal recommendation or solicitation to buy or sell. The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI. Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.