The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails

The Economy in Slow Motion

A lengthy discussion of seasonal patterns may encourage the idea of the stock market as a giant monolith that makes its own reality in reaction to, and anticipation of, the world around it. That is only partially correct. The U.S. economy heavily influences the U.S. stock market. So do other economies because various U.S. companies derive significant revenue from foreign nations. This is a key reason why December retail sales reports are important to the stock market. Retail sales reflect economic activity. If people are buying toys and computers and all kinds of presents, factories are busy and people are employed.

The economy is the ground under the stock market’s feet. The economy shifts and ripples in response to monthly data assessing its health. Those movements are reflected by the stock market as different stocks and sectors perform better or worse during different phases. Most investors would quickly find little time to analyze stocks if he tried tracking the slew of economic indicators to determine what, if anything, the Baltic Dry Index’s latest reading means for the Consumer Price Index and what that might portend for U.S. GDP.

To make things simpler, and because most seasoned investors are always trying to apply the KISS principle to information and investment decisions, investors focus on a critical economic report that is released on the first day of every month by the Institute for Supply Management. The Institute’s Report on Business, ...