Why economic indicators are important when buying stock?
By Tim Huang
What is economic indicator?
An Economic indicator is a statistic report about the economic condition. It allows traders to analyze past and current economic performance as well as predicting future market trends.
Why is it important?
No matter what stock you buy, it's price will be affected by the general market trends. Do you ever experience that a company reported good news constantly but it's stock price keep going down? One of the reasons is that it might have been affected by the general weak market conditions. For example, if you are holding a restaurant stock and the current market is weak with oil price keep going up and job market down. As oil price going up, people will drive less and therefore less people will go to restaurants. As job market going down, people will worry about job cuts and tend to save more money and therefore go to the restaurants less often than they used to. Some people might simply sell stocks to pay their mortgages because of layoffs. As more people selling than buying the stock, the stock price goes down. These reasons have nothing to do with the restaurant stock that you are holding, yet your stock price is dragged down because of these causes. Therefore, it is important to know the general market trends when picking stocks.
Which economic indicators should you watch out for?
There are dozens of indicators out there, and I will list the most important ones. These indicators will help you predict the market trends in the near future and help you make trading decisions weather you are a long term or short term investor.
Employment Situation - This is the most important indicator. It is published the first Friday (8:30am EST) of each month covering the previous month.
Unemployment Insurance Weekly Claims - It is published every Thursday (8:30 AM EST) covering the previous week.
Consumer Price Index (CPI) - It is published 2 weeks of every month (8:30am EST) covering the previous month.
Producer Price Index (PPI) - It is published 2 or 3 weeks of every month (8:30am EST) covering the previous month.
Retail Sales - It is published two weeks of every month (8:30am EST) covering the previous month.
Institute for Supply Management (ISM) - It is published the first business of the month (10am EST) covering the previous month.
Durable Good Orders - It is published 3 or 4 weeks of every month (8:30am EST) covering the previous month.
Gross Domestic Product (GDP) - It is published on the final week of Jan, April, Jul and Oct (8:30am EST) covering the previous quarter.
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