How Does the Economy and the Federal Reserve Impact Stock Prices?
Macroeconomic factors are decidedly important when searching for good investments and in managing existing ones. Certain economic conditions on a country or worldwide basis are great predictors of performance within certain sectors, as well as with specific stocks.
We’ve explored different investment sectors (industries) in previous articles, and many of these concepts are common sense — defense stocks and weapons manufacturers will perform well during wartime, for example, but beyond the obvious, nuanced economic conditions influence stocks and companies in interesting ways.
During economic downturns or periods in which economic downturns are expected, load up on stocks that provide basic necessities such as clothes, medical supplies, toiletries, food, and so forth. Be ready to cut positions in speculative stocks, small companies, companies requiring an influx of capital, and companies selling luxury items, luxury experiences, and unnecessary consumables.
Meanwhile, when an economy is thriving, shift into growth stocks and stocks entering new market or developing new technologies.
So, keep up with worldwide and statewide economic conditions and developments. Then, work backwards to analyze great investment opportunities. Such a strategy is also effective…
