A market is “inherently rational” according to pundits (I disagree) but in that line of thinking, there are fundamental reasons that drive the market in one direction over another. Below I provide a list of some common drivers and their historical impact, so one can calibrate their trading strategy as the catalyst takes hold.
Economic Conditions
Recession
Depression
Inflation
Deflation
Stagflation
Economic Calendar
Producer Price Index (PPI)
Consumer Price Index (CPI)
Inflation indicators like CPI and PPI are closely watched. High inflation can lead to higher interest rates, affecting borrowing costs and potentially impacting stock valuations.
Nonfarm Payrolls Report (NFP)
NFP is a key indicator of economic health, reflecting the number of jobs added or lost in the U.S. labor market. It provides insights into employment trends and can impact investor sentiment regarding the overall economic condition.
Gross Domestic Product Release (GDP)
GDP measures the total value of goods and services produced in a country. It provides a comprehensive view of economic performance and growth. A strong GDP figure can boost confidence in the stock market.
Federal Reserve Meetings & Statements
The Federal Reserve's decisions on interest rates and statements about future monetary policy have a profound impact on financial markets. Changes in interest rates influence borrowing costs and can affect stock prices.
Unemployment Rate
The unemployment rate reflects the percentage of the labor force that is unemployed and actively seeking employment. A rising unemployment rate can signal economic challenges and impact consumer spending.
Consumer Confidence Index
Consumer confidence is a leading indicator of economic health. High consumer confidence often leads to increased spending, which can positively impact corporate earnings and stock prices.
Retail Sales Report
Retail sales data provide insights into consumer spending patterns. Strong retail sales are indicative of a healthy economy, while weak sales may signal economic challenges.
Trade Balance Report
Trade balance data reveal the difference between a country's exports and imports. A trade surplus can positively impact a nation's currency and overall economic outlook.
Housing Market Data
The housing market is a key economic indicator. Changes in housing data can reflect shifts in consumer confidence, interest rates, and the overall health of the economy.