Spotting a stock trend before everyone is one thing every investor aims to discover; that's like finding the Holy Grail or a once-in-lifetime opportunity to make money. The beauty of investing in stocks is that it provides equal opportunity to all investors; irrespective of whether they are small or big fish, everyone gets a piece of the pie per their investment.

But the investor fraternity also knows that pitching, investing, and identifying the best stocks and funds before it gets into everyone's hands is not easy; even the most intelligent and savviest investors struggle to find the perfect stock or funds before everyone else. The interesting thing to comprehend here is that investing in the pre-internet era and predicting foreseeable stocks or funds is more complex and difficult than in the post-internet era.

However, the number of investors, availability of information, and people's interest in investing was also less than today, which increases the chances of hitting the jackpot by spotting perfect stocks or funds. But there are certain ways and methods by which you can predict and scrutinize stocks and funds that can perform well soon.

Economic Indicators:

Economic indicators are crucial for predicting and analyzing any stock market; experienced or new investors who are just starting to know about the potential of economic activity, how the economy works, and parameters to measure economic activity. Here are some key indicators that can help you understand and predict the market.

• Business Inventories: It's a good way to see and analyze companies successfully selling their products and services. It's a monthly index that provides insight to investors and economists who watch it closely.
• GDP (Gross Domestic Product): The GDP is the broader parameter that the US government officially produces; the GDP growth shows the economic growth and its potential in the future, it tracks various industries and their economic performance, and these areas show the consumption, government purchases, and investment and net exports in different sectors.
• CPI (Consumer Price Index): It is used to track inflation and predict consumer behavior in different sectors; evaluating past trends and current data helps economists and investors make their investment strategies to invest in different sectors.
• Employment Index: The employment index is yet another indicator that tells about the economic activity and performance of different sectors, it is again released by the government, and along with GDP, it can predict the rise and decline of economic activity.
• Leading Economic Indicators: This index tracks future economic indicators based on economic activity; three months of LEI data in the same direction indicates a trend in the US economy, and any negative constraints in three-month data show a sign of a potential sign of recession.

Stock Market Indicators:

Stock Market indicators are another way to predict and foresee the possible trends in the stock market. The stock market and the US economy are both dynamic; changes are always happening, rely on one thing can be fatal. However, combing these two and comparing and analyzing them can provide the information you need to predict a trend. Following are some stock market indicator that helps in understanding the best-performing stocks and funds.

• Dow Jones Industrial Average: Dow Jones is one of the famous and regarded as an important indicator to check the economic activity in the US stock market; it tracks and includes the major stocks of the US stock market, such as Apple, McDonald's, and Coca-Cola.
• S&P 500 Index: The S&P 500 index has 500 widely traded stocks, and it's one of the key stock market indicators that help investors and economists to analyze the widely traded funds and mutual funds and strategize their next moves and investment portfolio.
• Russell 2000: This index follows the 2000 small company stocks that are widely traded and act as a benchmark for small-cap traded stocks and funds.
• Wilshire 5000: This index has a wider and broader base of stocks listed on a stock market or exchanges across the nation. It includes the stock listings of the small, medium, and large companies.

Key Market Performance Predictors:

Apart from assessing and analyzing these economic indicators, whether they indicate the country's economy or the stock market conditions, some factors drive the market; an investor can't fight with the market forces or change their direction.

However, a good investor can see the potential opportunity and invest in stocks that complement the market forces. Following are some indicators that help you predict and analyze market trends.

Momentum:

Go with the flow is the widespread market phenomenon that acts like market wisdom that warns investors not to come in the way of market trends or forces. You have to move and go with the market flow and continue in the same direction. This particular act comes under the umbrella of behavioral finance.

Similarly, the studies show a positive correlation between mutual fund inflows and market returns. It implies that momentum plays a crucial role in the investor's decision to invest; when masses or more people invest, the market responds positively and goes up, which acts like a compound encouraging more people to invest.

Mean Reversion:

A phenomenon where a particular variable tends to converge or coincide with an average value is called mean reversion; the variable here depicts the stock price, which also goes up and down. An investor with a lot of experience remains reluctant to invest at high market prices, they are open to investing at low prices, and this is where an opportunity exists.

The mean reversion is also true and found in other economic indicators as well, indicators like exchange rates, GDP, interest rates, and unemployment index. It's hard to conclude the mean reversion as it involves plenty of data and many variables, but it can provide a certain level of certainty.

Martingales/ Probability:

Martingales is another concept presented by Pual Samuelson in 1965, where he studied market trends and found that past pricing trends have no effects on future prices. It implies that predicting the future price of a stock over the past price is not an efficient move; one can predict a future price from the current price of the stock.

It's all about probability, stock prices are ever-changing, and an intelligent investor predicts a future price by considering the current prices rather than past prices. There's a higher chance of getting good returns, but the probability of loss is always there.

Find the Value:

An experienced investor always invests in cheap stocks and waits for the reward in the form of a good return. They bet on the market's inefficiency to underprice the stock but the stock price adjusted over time, but why an inefficient market makes these adjustments remains.

There is no particular answer to this question; research suggests that mispricing and readjustment are continuously happening phenomena; it's the market's nature to change. Price will remain the driver for the valuation ratio; as soon as the prices go up, the future prediction and mean reversion suggests that the returns will be lower.

Final Thoughts:

The economic and stock market indicators and market performance predictors help you understand and jumpstart over other investors. The key indicators provide the necessary information to spot the trends that yield good returns ahead of others.

But the risk is always there; market forces and the market itself go with its flow; you have to be fully aware and prepared to play on the current prices and predict future returns.