Stock Market Key Indicators

Remember, money isn’t everything… But understanding the stock market can help you make the most of what you have. That’s why our Investing INTEL newsletter is here—to provide you with the insights and knowledge you need to navigate the stock market confidently.

As we discussed in recent articles, Investing In Stocks: The ‘Rule of Three’ and the Secret To Stock Investing: Revealed, three strong indicators help investors better identify the most opportune times to enter and exit the stock market.

We highly recommend understanding these simple principles, as our investment professionals aim to educate investors. If you missed our most recent Investing INTEL newsletters, the articles are featured on our company website by following the links above and below:

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Essentially, the Investing ‘Rule of Three’ is a set of money indicators that investors can utilize to predict bear market signals.

Here’s a wrap-up of how you can integrate these stock market indicators into your investment strategy:

1. When the “Rule of Three” flashes red, getting out of stocks may be a good idea. It indicates that a potential major recession or depression is on the way.
2. When Delta-M (money supply) is very negative, i.e., less than -.30, a sharp economic downturn could be on the horizon. Although you can weather the storm, consider getting out of the market and entering again when all is clear.
3. When the average monthly change in money supply is more than 1% or less than 0.20%, be cautious about new stock investments; either the economy is growing too fast, or a recession may be imminent.

Following these three money indicators- and no others– would potentially have kept you ahead of the game for the past sixty or seventy years. Few other indicators have this kind of long-term record.

Still, these indicators are not foolproof. As we’ve pointed out, they occasionally miss several of the market’s short-term flips and twists. This is why it’s advisable always to utilize a combination of steadfast stock market indicators.

As we have presented, steady money supply growth doesn’t guarantee a rising stock market. Furthermore, money isn’t the only thing the economy and stocks need to indicate good health.

The other core indicators we have discussed in previous articles- commodity prices, unemployment insurance claims, interest rates, and price-to-earning ratios also have a place in an on-target investment strategy.

Tracking money supply growth can’t predict these variables. However, it can rule out the two most destructive forces affecting the stock market: hyperinflation and deflation.

So, while money is not everything, understanding how it can hurt or help your stock holdings is vital to successful investing. And if you use the indicators featured in the plethora of educational articles we feature on our company website, you’ll find that money does indeed talk… and loudly sometimes.

Key Takeaways:

1. Money supply growth is the river upon which all economic life depends. The Federal Reserve regulates money supply growth to maintain the optimum flow for promoting sustainable economic growth.
2. The ‘Rule of Three’ tells you when the money supply flow shrinks dramatically. At such times, a possible deflationary depression is perhaps in store, and stocks risk the potential for losses vs. gains.
3. Delta-M tells you when the rate of change in money growth is slowing down sharply, leading to a slowdown in economic growth. That’s a warning sign that you may want to exit stocks until a better economic climate presents itself.
4. Monthly changes in the M2 money supply measure money flow into the economy. Too rapid growth signals that inflation is a threat to stocks. Too slow growth means that, in contrast, deflation is a threat.

Disclaimer: This article is for educational purposes only. Our investment professionals urge all investors to make decisions based on their own personal investment objectives.