Successful traders know that identifying market catalysts is one of the keys to getting ahead of the game. Technical traders look for potential catalysts in a stock’s chart, while fundamental traders watch for earnings reports and other fundamental catalysts in the headlines.
Some of the most important fundamental catalysts for the stock market are periodic updates on the health of the U.S. economy. Here are four economic catalysts traders should always watch.
The goal of the Federal Reserve is to keep the economy growing at a healthy pace, and the Fed’s decisions on interest rates and other monetary policies have a major impact on the stock market. Rising interest rates are intended to slow down an overheated economy, but they also raise the cost of capital for U.S. companies, pressuring margins. The Fed typically tries its best not to rattle the market by being as predictable as possible with its long-term plans, but even subtle shifts in language can have a major impact on stock prices. Fed chair Jerome Powell is scheduled to testify in front of Congress on December 5.
The Bureau of Labor Statistics reports updates on the U.S. employment situation on the first Friday of every month. Investors typically care most about total nonfarm payroll employment, which is an indication of how many total jobs the U.S. economy gained or lost in the previous month. A drop-in jobs is one of the earliest indicators of an economic downturn and can trigger a sell-off in the market. However, relatively slow job growth can sometimes be considered bullish for stocks if investors believe it may force the Fed to ease its monetary policy. The next employment report is due out on December 7.
GDP is perhaps the best direct measurement of the strength of the U.S. economy. GDP represents the combined value of all the total goods and services produced in the economy over a period of time. In fact, negative GDP growth is what defines an economic recession but declines in GDP growth can be enough to derail a market rally months before an official recession is declared. The Bureau of Economic Analysis reports GDP growth on a quarterly basis, but it issues updates on GDP growth estimates on a monthly basis. The next BEA GDP update is scheduled for December 21.
The Commerce Department releases U.S. retail sales numbers in the middle of each month. The U.S. retail sector is a measure of the “Main Street” economy. Core retail sales, which exclude auto sales and gasoline sales, is a key measure of consumer spending and sentiment. Consumer spending represents about two-thirds of the overall U.S. economy, so it’s understandable that stocks often react to the monthly reports. The Commerce Department is releasing its next monthly retail sales report on December 14.
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