…In this micro world of trading and investing, traders tend to… confuse the stock market for the economy but the stock market is [only] one indicator of economic health; it is not the economy, nor is it THE indicator. [Let me explain.]
The economy is based on a country’s production and consumption of goods and services. Various tools are used to measure an economy’s health. They include unemployment, manufacturing, housing, bank loans, trade and deficits.
The stock market looks at the economic data and determines what is likely to occur in the economy down the road (usually 6-8 months out). It’s more of a predictive tool, and over the long-term, it is proven to be accurate. As a result, the stock market serves as a discounting mechanism for prices based on trends, patterns and certain economic data.
Macroeconomic trends are important for traders to follow because they tip you off when the economy is about to turn up or down. If you pay attention, you’ll be in the right mindset and ready to handle whatever’s coming next…
Like many things in life, the more you know, the better. This year, make it a point to follow the macroeconomic trends, and see how it changes your perspective.