September 4, 2013 in 3rd Guide - Portfolio Building
4 Market direction drivers
4 Market direction drivers include autos, jobs, housing and the FED. Auto sales, employment, housing sales prices and starts and the Fed make markets go. When those economic forces are growing so will the stock market,
This lesson explains the 4 economic drivers of markets and the economy. This lesson 1 of the Active Management course covers active investor opportunities. Links at the end guide you to related lessons if you want to learn more.
This is lesson 3 of the Monitor Markets to Protect Wealth course discusses how market indicators, jobs, housing, autos and the FED ties directly to our stock market future. Links at the end guide you to related content if you want to learn more.
Its autos, jobs, housing and the FED
We begin with further comments on employment.
Employment 3 and 6 month trends
There is always too much noise in the stock market. Some of that noise comes from conflicting employment reporting and constant revisions of previously reported numbers. Employment statistics are endlessly sliced, diced, analyzed...and then revised! Just note the big picture trends and more along.
Gathering correct employment information presents a huge challenge. Frequently there are revisions of past reports. That means any new numbers are subject to change! So how do we make use of changing information?
We look at trends. The numbers use to produce employment trends of 3 and 6 months also get tweaked. However, the big trend picture remains constant. The patterns seldom change, especially when we step back from the noise.
What to do when employment numbers change
By being cautious with any new numbers on each employment report, and basing our decisions on longer trends, we keep ourselves on a stable and reliable track. That more reliable information gives us a tool for making better strategic and investing decisions.
The employment struggle will continue in some markets and for some people, as it always does. Overall the picture usually tilts slightly to the positive.
That is the case now. Growth is underway. I expect the positive trend to continue although this picture remains far from rosy.
This remains so even as the employment market undergoes some deep and fundamental changes. The meaning of employment itself continues to change as market forces and approaches have introduced some irreversible and powerful new players.
For our purposes here, the fundamental paycheck, however earned or even when from multiple sources, is the key driver. Employment of whoever or of whatever sort, remains THE key economic driver. Trending up - good, trending down - bad!
Auto sales 3 and 6 month trends
Billions made with billions more auto to come! I can't imagine a greater mass of many things that we humans create more of than autos!
Still seeing shiny new vehicles on your street are good economic signs. It does not matter if they are economy cars, sports cars or huge fully loaded luxury trucks. More and new is good. At least economically, for now!
The auto markets have had some bumps but generally are hitting record after record. Overall, the North American picture is positive. I expect this positive trend to continue for the foreseeable future. Of the three, jobs, houses and cars, autos are the least important indicator among an important group. But they can be seen as the most sensitive to economic change. That makes them the most sensitive indicator.
Consider your own behavior and attitude. New job, pay raise or when your business is going well, often means we soon see a new car outside your place! Job or income worries mean any car buying notions can be put off for months or years. Cars are a major buy, made when we feel good!
Buying a house or changing jobs, when not forced to, are far more deliberate and careful economic moves for most people. Usually such decisions get made after months of thinking about it. Cars are more often purchased on an emotional whim. That makes them the best indicator, of those three keys, to warn or signal an economic change.
Very long-term there are certainly some inevitable changes that will significantly affect the auto industry and economy. Major changes are coming but are many years away yet.
U.S. Federal Reserve funds rate
The FED is like us in some ways. Like us, what they say is very important, but most important is what they do!
What is the FED doing? Again, it is the trend, not the absolute numbers that are important. Rates are on the floor and are staying there. The trend is flat, stable and will remain so for a long time.
Again, like us, at least for those who follow the White Top Investor, the FED pays attention to job, house and auto numbers and trends. However, the FED goes considerably beyond the simple approach that I take. They study and research in considerably more breadth and depth. The FED is a very well-informed, exceptionally well-educated and well-managed institution.
We don't know and they don't know how markets work!
But they aren't perfect! When it comes to the economy, humans have not learned what perfect is. We humans are still figuring out how this economic stuff and markets work! Even so, the many professionals at the FED are well ahead of the curve. They are certainly well ahead of the pundits and media talking heads that make so much noise.
The FED is far closer to getting it figured out than any other group. They also carry immense economic power into the financial arena. We do need to pay attention.
Every pundit, economist, talking head and guru has a spin on the FED and the fund rate. The noise level is incredible! There are many more PhD theses still to write that will join the many thousands now gathering dust on the shelf!
Thank goodness, we can ignore them all! What matters is what the FED actually does. For the time being that means nothing. The FED funds rate remains on the floor. I expect that to continue for some long time yet.
For anyone on Earth, the U.S. FED fund rate is key. All other central banks and economies are directly and substantially affected by it. So no matter where you live this one is the one key rate. All other national and regional rates will be directly affected if not actually determined by it. That will hold true for more decades yet. Not forever, but for many more years. Yes, you can count on it!
By keeping an eye on autos, jobs, housing and the FED we get a good feel for the economy.
Share: 4 Market direction drivers
Buttons at the bottom of the page let you send this lesson to family and friends!
Subscribe free and get White Top Investor lessons in your inbox!
Make money work for you by knowing how investors think, feel and act. Learn here The Investor Mind.
White Top Investor website layout and organization: click here.
Course links to White Top Investor lessons.
You may also like these other lessons related to: 4 Market direction drivers
Bernanke billions save trillions!
FED Superhero Bernanke bounces depression
Ride tapering groupthink higher
5 Key finance check
Investment impatience destroys wealth
Comments and questions welcome
Email me at WhiteTop@WhiteTopInvestor.com.
Make money work for you
Use White Top Investor lessons to learn investing. By doing that you can grow into a knowledgeable, comfortable and confident investor. To learn how, you can learn investing one small step at a time at your own pace. Do that and become the master of your financial security and independence. White top Investor never sells or shares our email list. Learn more.
Monitor Markets to Protect Wealth:
Introduction to Monitor Markets to Protect Wealth Lesson 1
4 Indicators muffle noise Lesson 2
4 Market direction drivers Lesson 3
Daily buyer-seller battles Lesson 4
3 Risk or opportunity signals Lesson 5
Look forward with data Lesson 6
5 Star market compass Lesson 7
Check market direction trends Lesson 8
Headline news market risks Lesson 9
Next lesson 4: Daily buyer-seller battles
Have a prosperous investor day!
Bryan
White Top Investor
whitetop@WhiteTopInvestor.com WhiteTopInvestor.com
Let’s connect, follow me; Twitter LinkedIn Facebook
Image courtesy FreeDigitalPhotos.net
© 2013-19 Bryan Kelly