Evaluating the Market – The Domestic Economy

Evaluating the Market – The Domestic Economy

A brief overview of those indicators that regularly influence the JSE

Analysing economic indicators can help investors to evaluate the general equity market trend better as well as to identify the best sectors to invest in. Here are some of the most important indicators we see regularly and the likely market reaction they provoke:

Evaluating the economy:

The easiest way to evaluate economic indicators is to ascertain the impact on interest rates. If an indicator puts upward pressure on interest rates, the stock market will in general react negatively.

There are two main reasons for this:

  • Firstly the higher interest rates increase borrowing costs for the company and thereby reduces its profits.
  • Secondly, interest-bearing deposits provide a risk free alternative to stock market investments.  Higher interest rates mean that deposits are more attractive to investors and many will switch out of the stock market to deposits.

Both these factors tend to impact negatively on the stock market.

Economic analysis is more of an art than a science. Many factors influence the stock market and expectations are very important. Even objectively good economic figures can sometimes lead to a decline in the equity market if they are not as good as subjectively expected.

– Gerhard Lampen

Head – Sanlam iTrade

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