What the Current American Economy Implies for Stock Market Investors

What the Current American Economy Implies for Stock Market Investors

At a glance, the US economy remains the largest and most important in the world. Dominated by service-oriented companies in financial services, technology and other areas, the economy represents about 20% of the total global output. Not that America lacks challenges; she has had her fair share of domestic short-comings added to the fast-changing global landscape. Despite the cons, her economy still beats that of China.

One could ask how America does it. How does she maintain her position at the top of financial charts? Well first, the country has significant access to abundant natural resources which it uses to grow its manufacturing sector. Her workforce is also huge, productive and well-educated. To add to the list, she leads in top-notch industries such as telecommunications, machinery and automobiles.

This should then translate to a conducive and favorable platform for investors, right? Not exactly. Analysts at Olsson Capital assert that the US stock market is determined by more. Simply investigating a company’s fundamentals such as sales, debt loads and cash flows should not be enough for investors.

Gross Domestic Product

Commonly termed as GDP, this economic indicator is normally used to gauge where a nation stands economically. Is the economy healthy or on the edge? GDP is the total amount of goods and services produced in the country inclusive of all investments, public and private consumption as well as government outlays.

The Gross Domestic Product of a nation significantly affects the stock market returns. The higher the GDP the more profits investors anticipate gaining. When the GDP falls, businesses will in turn start to suffer and the stock prices will be negatively affected. Currently, the American GDP is at a good percentage, meaning the stock market expectations are higher.

The Producer and Consumer Price Indexes

Both PPI and CPI measure the price changes of baskets of goods. The Consumer Price Index highlights the average change in the prices of services and goods consumed across more than 200 different categories. It includes prices of food, energy and medical services that citizens use every day. On the other hand, PPI tracks the average price of over ten thousand commodities that companies will manufacture into finished goods.

Investors only like it when these two economic measurements are on the low. For instance, higher CPI for basic goods might mean no extra money to buy discretionary items like stocks. Likewise, higher PPI could prevent an organization from expanding as the cost of producing goods becomes higher.

In the United States, the Consumer Price Index is currently on the high.

Unemployment rate

The rate of employment illustrates the strength and development of the economy. It also affects the stock markets and that is why investors are always closely monitoring the number. In the US, the Jobs Report is released every month and it accounts for nearly eighty percent of the workers who produce the total gross domestic product. This report helps the government as well as economists in predicting the future state of the economy.

When more people are employed, there are higher retail sales, economic output and savings. Equally, the stock market will realize profits putting investors in a good place. Since 2012 all through to 2017 in America, the unemployment rate has been reducing gradually. This therefore means that investors should worry less about this economic measurement coming next year.

Retail sales

The retail sales report is another report that many people including investors always anticipate. The retail sales in America account for up to 70% of the nation’s GDP. The report always provides information that is only a few weeks old. When investors see poor reports, they often rush to sell their stocks in fear of accumulating losses as stocks tend to decrease with reduction in retail spending.

Since the nation is in the season of holidays and festivities, there is likely to be a downturn in the economy. Therefore, investors should be very cautious when making decisions about buying stocks.

Invest smart

A wise investor will stop to consider all the factors that affect the stock market, be it economic indicators or otherwise. The above mentioned measurements highly affect the stocks, but so do earnings, sales and debt measures. Bottom line is, if you want to remain at the top of the game, be sure to keep track of all stock market influencers.