Key Indicators to Watch in the New Year

By Maurice Stouse

As investors turn to the New Year, and reflect on what is to come this year, it is important to remember that no one truly knows what will happen in the markets. The stock market, the bond market, the money market, the real estate market, the commodities market and others, are all are affected by key statistics. Investors can watch these indicators and use them to help guide them in their decision making.  Here are three indicators to watch for.

Start with inflation. It is considered to have been in check for quite some time now. In fact, deflation was more of the concern at the turn of the decade. Inflation is important to watch because it tells you what purchasing power a dollar has. Inflation beyond certain levels, many would argue 3%, is seen as a negative to purchasing power. Often times the prices of commodities, oil among them typically see an impact. Inflation also drives interest rates which on the one hand affect the cost of borrowing (higher rates and hence less borrowing which affects economic growth). Stocks might see an impact in that investors would buy stocks vs bonds because of higher inflation. On the other hand, higher inflation could hurt earnings which would hurt the performance of stocks.

The value of the dollar. A strong dollar is generally seen as good for the economy in that dollar denominated assets usually appreciate. And on the other hand this could mean the cost of US goods and services is higher overseas, which could have a lagging effect on earnings and asset values. A strong dollar typically keeps interest rates stable as well which helps with borrowing costs

Valuations. As in the case of stocks. Many people look at valuations and often use a price to earnings multiple for stocks. As a general rule multiples of less than 13 indicate an undervalued company. 13-20 is the typically range to see value and over 20, the stock might be seen as overvalued. This does not typically apply when investors look toward growth of earnings vs current earnings. Many stocks today have multiples that are much higher. Nonetheless investors take caution when valuations get too high.

Contact or visit with your advisor today to start the conversation about the markets, key indicators and your own goals and needs.

Maurice Stouse is a Financial Advisor with Raymond James and he resides in Grayton Beach.  He has been in financial services for over 31 years. His office is located at Raymond & Associates, Inc., 34851 Emerald Coast Parkway, Suite 200, Destin, FL 32451. Raymond James advisors do not offer tax advice. Please see your tax professionals. Raymond James & Associates, member New York Stock Exchange/SIPC. Phone 850.460.1995. Email: Maurice.stouse@raymondjames.com.

Views expressed are the current opinion of the author and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts will occur. Investing always involves risks and you may incur a profit or a loss. No investment strategy can guarantee success.