In tough economic times, it seems all you hear is bad news and stocks are no exception. While investing fundamentals never change, even the most patient investors may get anxious for signs of an upswing. It's common sense that healthy economies mean healthy companies and growing returns, so here are some signs that the economy's on the rebound.
Not only does inflation eat at your investment returns by lowering the value of each dollar, it also eats away at business profits. Low inflation rates mean a lower cost of goods for manufacturers and retailers, and that means higher profits, even when prices remain the same. Higher profits translate into better returns for investors by increasing shareholder equity and the value of the stock itself. The Consumer Price Index is a good barometer for inflation, since it charts the prices of basics like pantry staples and gasoline. You want to see it leveling off or increasing slowly -- rapid movement up or down is not a good sign.
Increased Production or Leveling Prices
Many economic reversals begin with changes in fundamental supplies and services. A leveling or decrease in gas and petroleum prices, shipping costs and other crucial raw materials can indicate an upswing in production to meet increased demand, and increased consumer demand generally ties in with confidence in the markets -- a key factor in rising stock prices. There are several indexes that chart these prices, and they're regularly reported in market news. Of course, most people can track gas prices simply by filling their tanks once a week.
Just like inflation, loan interest eats into profits. Interest rates that remain steady or decline mean it's cheaper to borrow money to finance business growth. They also mean it's cheaper for people to buy the things they need from the companies you invest in. All of this translates to a healthy demand within the economy and opportunities for stock growth. Find the federal interest rates through your favorite economic news source -- it's guaranteed to make the front page on a regular basis.
More Highs Than Lows
An upward trend will see a series of highs -- new 52-week averages, indexes that are greater today than they were yesterday and the day before. The Dow Jones Industrial Average is a classic barometer, and easy to find through any news source. You want to see an average of highs with minimal drops over a period of a few weeks or more. It's important to note that this indicator is a bit more reactive than others, so you may not see the full trend right away.
- "MarketWatch"; Five Signs the Stock Market Has Bottomed; Jonathan Burton; April 18, 2008
- Discover Options; The Big Three Economic Indicators; Jim Graham
- Daily Finance; Eight Contrarian Signs That Call a 2011 Stock Rally Into Doubt; Charles Hugh Smith; December 2010
- Economic Indicators Point the Way; M&I; Institutional Trust Services
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