Inflation, employment rates, and economic growth have been in the headlines more than usual. Investors obviously regard these stats as indicators on how the stock market will perform. But if you’re new to the game or rely on someone else to handle your investments, you may be wondering what the cost of milk has to do with your returns.
This gap in knowledge is one reason that the wildly successful investor Howard Marks wrote Mastering the Market Cycle. He knew that many people aren’t familiar with the basic laws of cause and consequence when it comes to economics.
So here’s the short answer: the stronger the economy, the more likely it is that businesses will increase their earnings and the stock market will rise. That’s why investors tend to make riskier bets when the economy is good, and play it safer when the economy is stagnant.
It’s a good reminder that everything really is connected. Learn more in our Instaread on Mastering the Market Cycle.