The Big Three Economic Indicators

By Jim Graham

Traders are always trying to understand the factors that cause the market to rise and fall. The truth is that there are a multitude of factors, and millions of investors make decisions that impact the market every day. Corporate earnings and news, political news, and general market sentiment can all move the market. But economic factors have the most influence on long-term market performance.

There is a lot of economic data available on the US economy, and almost every day some economic report or another is being released. When reading these releases I always try to assess the importance of each item and how it fits into the current economic situation. For the most important reports, especially those that may impact an industry that contains companies you are trading, it is often better to not rely solely on the analysis offered by financial journalists but to look at and try to understand the original sources.

Of all the economic indicators, the three most significant for the overall stock market are inflation, gross domestic product (GDP), and labor market data. I always try to keep in mind where these three are in relation to the current stage of the economic cycle. That gives me a framework to work with that allows me to estimate how any individual piece of economic data may affect these three indicators, and to then project its probable effect on the stock market as a whole.