I thought it was a good time to talk about economic data and how it impacts the markets and our investing/trading habits. I will not go into great detail however, as I recall the fright from learning about a deluge of indicators in detail back in school. I will save you the pain!
Next week brings a slew of data, but how do we parse it and figure out the most relevant for our purposes? All of it is important of course but we have to know what is more ‘forward looking’ and what is more about the past.
Since the stock market always looks ahead we should focus on the data that also gives us a glimpse of the future, or at least the current quarter. One number of course does not tell the whole story. Much like my read into stocks, I look for trends, patterns and momentum that will have the biggest impact.
Chief among these is the monthly labor report, which we’ll get next week. It’s backwards data but a great estimate for what comes down the road (weekly jobless claims also are important to follow in terms of trend). Durable goods, purchasing manager index, and ISM (formerly chain data) and industrial production are key metrics that help us determine where our manufacturing sector is headed. Retail sales are critical as well— the consumer is 70% of the economy. The various sentiment numbers from consumer and Michigan give us a pulse of what everyone is feeling at a moment – which can spill over to the future. Finally, construction spending, factory orders and auto sales are leading indicators that give u combined look of quarterly GDP performance.
Now, there are many others that may come into play – inflation data (CPI, PPI), GDP advance, home sales, export/import data and regional manufacturing. But these are a bit lumpier and are less consistent in giving us the best view or outlook.
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Bob Lang has been managing private options trading accounts for clients since 2004 and providing subscribers with guidance on trading options for income at Explosive Options since 2011.
