The Role of Economic Indicators in Share Price Movement

Economic indicators — both leading and lagging — help predict market conditions, influence stock and option prices, and provide insights that are crucial for successfully navigating financial markets.

When economic releases come out, traders have a chance to make well-researched and smart choices to fit present and future requirements. Some important signs traders should pay attention to here:

Employment

The stock market is one such measure that can tell you something about investors’ views on the state of the economy in the future, including jobs reports that are better than they predicted. Good employment data can give investors reason to believe that the economy is expanding faster than anticipated and can help float stock prices of companies.

Consumers will have more disposable income to spend and with that corporate profits and the stock market will increase.

The stock market traditionally peak’s around unemployment levels being at a historical low point in an economic cycle. But there are alternatives – consumer demand may be lower and stock prices for some industries may fall due to falling consumer interest; company size, business model and service products all factor in when figuring out how the stock price of a company moves with changes in employment.

Consumer Confidence

The performance of the stock market is influenced directly by macroeconomic variables like gross domestic product (GDP), unemployment, consumer confidence and many others. GDP tells you whether an economy is in good shape; unemployment rate is another telling indicator of the strength of an economy; it tells you how much money you can spend.

The Conference Board also runs monthly polls of consumers about how they feel about the economy and their finances, in the hope that rising confidence will drive higher spending that drives revenue for the company. If it is not or better than expected, but whether or not it’s the case then its presence is significant as an indicator that leads us to the future, rather than random signs of the status quo.

GDP

Economic expansion is one of the main determinants of stock market returns. Consumers’ disposable income goes up, and they use it to purchase the goods and services offered by companies across industries – driving their profits and revenue higher and hence their stock prices higher.

Higher GDP can mean lower interest rates, and that favors stocks. Positive GDP contraction, on the other hand, typically means that there’s a recession in the works and markets are going to pull back. Hence it’s essential for investors to develop an investment plan and adapt their portfolio accordingly; important indicators such as manufacturing Purchasing Managers’ Index (PMI) tell traders about what to expect from the stock market.

Retail Sales

Retail sales are a great economic gauge to investors as they tell them how consumers are spending their money. A good run of retail sales means an economic recovery, higher profits for companies, and maybe even higher stocks.

Unemployment is another economic metric that can influence the stock market for a very long time. Having low unemployment usually means people have spending money, which boosts revenues for businesses and shares. Meanwhile, a lot of unemployment can signal fiscal insecurity that leads consumers to lower spending which damages firms and will drive down stock returns and in turn, decrease returns on investors.

What economic signals can do for stock prices matters to all investors, beginners to experts. Monitor leading and lagging indicators so you’re always informed on the state of the economy and how that affects shares.

Housing Market

There is a difference between housing market and stock market, but there’s actually no such thing as home market and stock market. Stock markets can affect housing markets by using different factors like interest rate movements, investor confidence and bank loan policies.

Remember that property deals take much longer than the trading of stocks so any movement in the stock market may have long term implications for real estate deals. A low stock market may not directly drive home prices lower but could be a bottleneck as consumers don’t want to make that sort of large investment.

In more dense markets, bearish and bullish candlesticks tended to be statistically unrelated, and therefore more random within them.