Far too often individuals buy stocks without contemplating the bigger picture. In other words, they buy shares in a company without contemplating market forces or macroeconomic factors that can drastically influence the outcome of their investments.
Cheap Stocks Or Value Traps? Choose Your Own Asset Allocation Adventure Levels Of Security For Investments 8 Reasons To Own Gold 4 Risks Of Investing In Startups And IPOs There are outside factors such as key market forces and economic metrics that investors should keep tabs on. Find out why a stock might take a nosedive and what signs you can watch for to help you avoid it.
Have large companies and/or market leaders that operate in the same sector as the company in which you own stock recently reported earnings? Were they positive or negative? Either way, the earnings of industry leaders can have an impact on the way the stock you own trades - for better or for worse.
To be clear, this doesn't mean that investors should avoid buying a stock simply because a competitor might report bad earnings. Nor does it mean that they should buy a stock even if they're certain a competitor will release good earnings. What it does mean is that they should be aware that those earnings could have an adverse (or a positive impact) on the price of their stock.Economic Numbers
Have unemployment or housing numbers, or any other market data come out that could influence the market or adversely impact a certain sector? Be aware that throughout the month a stream of economic data is released that could influence both the overall market and the price of the stock that you own. inflation Gross Domestic Product (GDP)
GDP numbers show the pace at which the domestic economy is growing (or not growing). Their release often has a huge impact on home builders, as well as manufacturers and retailers of big-ticket items. The logic here is that if the economy is slowing, consumers will be reluctant to spend money on non-essential items.Producer Price Index (PPI)
The PPI numbers depict the average change in prices received by producers for their goods. Rising prices can be a sign of inflation, which in turn can cause the Central Bank to raise interest rates (in order to slow the economy). That can be bad for both the stock and the bond markets. Durable Goods Orders
Durable goods data depicts orders for goods with a lifespan of more than three years. It is indicative of the overall health of the manufacturing sector. If you are investing in a company related to manufacturing (or the sale of manufactured goods), it is important to evaluate this data.
Interest Rate Decisions
The RBA is responsible for the direction of interest rates. Not surprisingly, their actions can move markets. In fact, every minute of its monthly meeting is usually dissected by analysts and economists for hidden meanings. All sectors and industries can be positively or negatively impacted by what this body says and does. So ignore it at your peril!
Overall Market Direction
A rising tide lifts all ships, and vice versa. Based on this logic, try to avoid buying into or selling a position when the stock market as a whole is trading against you. The fact is that you could invest in the best company in the world with the greatest earnings potential ever seen. But unless stocks in general are being accumulated by the investing public that stock may be stuck in neutral. T here is an old saying that applies to virtually any situation when it comes to buying or selling a stock: Let the trend be your friend. Overseas Market Action
Far too many investors seem to think that our markets are some sort of island - that our trading isn't influenced by any outside factors. Overseas markets in Europe and Asia, however, can have an enormous impact on Aussie stocks. In fact there have been several major multi-day and longer-term sell-offs in overseas markets in recent years that have been blamed for major losses. Commodity Pricing
Commodity prices/trends can have an enormous impact on stocks. Despite this, most people overlook the price of things such as oil and cotton (two important components in many products), and their potential impact on corporate earnings.
The Bottom Line
There are many market and macroeconomic forces that impact stock trading and that investors should be aware of prior to buying or selling shares in any security. While it is necessary to heed these factors and forces, however, the most important thing to consider is the attractiveness of the company itself and whether it is worthy of an investment.
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