How To Follow the Stock Market Investment U
Post on: 21 Май, 2015 No Comment
by Dr. Steve Sjuggerud Tuesday, January 14, 2003 Wisdom of Wealth
How To Follow the Stock Market. and Get the Big Picture
By Dr. Steve Sjuggerud, Chairman, Investment U
Tuesday, January 14, 2003: Issue #413
Are you watching the CRB? The T-bond? The Russell?
If you’re not, then you may be missing the big pictureand what’s really going on. Learning how to follow the stock market has its benefits. Most investors follow just the Dow, the Nasdaq and maybe the S&P 500. But just following those two or three indexes could lead you to POOR investment decisions without ever realizing it.
That’s because — with just those three pieces of information — you won’t have the right information to make informed decisions about the market. Today I’ll tell you about three simple — and quick — things you can do to make sure you learn and retain the right information Every Day. And I’ll also tell you why the Dow really isn’t a good stock market barometer to follow
What’s Wrong with the Dow
The Dow Jones Industrial Average—the stock market index that everyone talks about—is actually not a very good barometer of how the stock market works. If you’re just watching the Dow, you’re missing the overall picture. It’s not bad. But it has a few problems
In my mind a good index has a lot of stocks, is size-weighted not price-weighted, and is widely quoted and available. By that standard, the S&P 500 is a good stock market index.
The Important Other Indexes To Follow
There are three vitally important indexes — the CRB, the T-bonds and the Russell — that you should follow regularly to get a gauge on what’s going on. Keeping tabs on these three indexes doesn’t take a lot of time to do yet most investors would be much better off if they did. Let’s evaluate each in greater detail
Of these, T-bonds are probably the most important, as it is the primary benchmark of the cost of money in the entire world. When people say T-Bonds they’re actually referring to the 10-year U.S. Government Treasury bonds. Don’t pay attention when they say T-bonds rose 13/32s today just listen for what happened to the interest rate: i.e. the yield fell to 4.13%. Though it hasn’t been the case in the last three years (as we’ve been shedding the excesses of the stock market boom). As a general rule, stocks do well when interest rates are coming down, and they struggle in the face of rising rates.
The CRB Index is an excellent gauge of what’s happening in commodity prices, as it’s an index of a basket of 17 commodities. It includes metals, oil and gas, livestock and agricultural commodities. The index often moves in the opposite direction of bonds. Interestingly, the CRB index is up about 20% in the last year, signaling higher inflation and lower bond prices (higher interest rates) ahead.
The Russell is the benchmark index of small stocks. It’s actually the Russell 2000 Index. It’s important to follow nowadays because we’re coming out of recession and the worst stock market crash since 1974. After that crash, small stocks absolutely trounced large stocks, beating them nine years in a row, as reflected in the chart below:
As a rule, you should also keep your eye on the S&P 500, and what Greenspan does when he tinkers with rates. After that, if you know what T-bonds, commodities and small stocks are doing, you’ll have a pretty complete picture of how to follow the stock marketand what’s going on out there in nearly the whole investing world.
Good investing,
Steve
Today’s IU Crib Sheet
www.barchart.com/. If you do that, you’ll be much better informed than most investors these days
* Of course — since I follow the stock markets for a living — there are a number of other indexes I track. Here’s a brief list of just a few that I like to follow (along with its symbol or web site)
