The Coronavirus pandemic has changed people’s lives one way or another. When we talk about the economy, a K-shaped recovery is benefitting a part of the population that already had resources and increasing the inequality gap as those who lost their jobs, especially in the Services industry, are having a hard time keeping up with basic expenses.
But a behavior that stood out this year was the increased use of mobile apps for stock trading, as more people got their feet wet and started investing in equities and learning the importance of analyzing economic indicators for online investment success.
This democratization provided by cheaper options of online trading is important to expand the number of Americans that can learn to diversify their investment options and save for other economic downturns or their retirement.
The Robinhood effect
About half of US adults already have money in the stock market, either through their 401K, mutual funds or creating their own portfolio. And we had some options of online apps in the market for quite some time, suck as TD Ameritrade and Fidelity, but everything changed with Robinhood. The combination of commission-free investing with a gamification aspect to appeal to a younger audience created a juggernaut, as the company gained 3 million new customer accounts just in 2020 and saw its valuation skyrocket to almost $9 billion.
Another important factor in this explosion was the additional benefits provided by the government at the start of the pandemic in March. While for some people it was lifeline as they lost their jobs, for others it was basically disposable cash, as they were working from home, had reduced costs and received an extra $1,200 to spend. But instead of spending, a lot of Americans decided to save, as the Personal Saving Rate grew from around 8% at the start of the year to 33% in April.
Therefore, many youngsters saw an opportunity to jump in a stock market that had fallen 30%, but was quickly regaining its strength with all the liquidity provided by the Fed. As it became a bull market that was growing almost every day, and there were no sports to gamble at the time, day trading became the new American pastime, and the S&P500 and Nasdaq not only recovered all their losses for the year, but are actually in positive territory now. But as the coronavirus cases continue to spread around the country and probably a vaccine will be widely available only in the 2nd half of 2021, the market instability has increased and the need to base your investments in solid economic foundations becomes critical.
Why use economic indicators for online investment?
As Mark Cuban brilliantly said, “Everybody is a genius in a bull market.” For those who saw 20, 30 or 40% gains in their investment while working from home are now experiencing a harder time figuring out what to do. The primary assumption here is that stocks also go down. Yes, we’ve been seeing a stock market growth since the crash in 2008, but economic cycles occur through history, and even though we will overcome this health crisis, we could be facing a difficult time for some sectors of the economy in the coming years.
But as the Federal Reserve has already indicated, basic interest rates will stay at zero (or near 0.00%) until 2023, so your investments need the equity market to present any gains. And this is where having a better understanding of what’s going on with the economy as a whole every month will improve your chances of making better investment decisions.
If you have the time, you can turn your TV on CNBC every day and see each morning a new economic indicator being released and follow how the market reacts to it. There is a reason large investment firms and mutual funds analyze these data points. Because when we talk about indicators such as Consumer Spending, Personal Income, GDP, Unemployment Rate, New Homes Sold, New Bankruptcies, Debt Balance, and many others, they all indicate the status of a piece of the puzzle that is the US economy. And understanding how to fit together these puzzle pieces to have a complete picture is why large companies spend thousands (or millions) every year, to have a better ROI.
Of course, you will still have Story Stocks like Tesla, which really don’t provide a reasonable explanation for its tremendous growth (yeah, I agree that Elon is a genius and that his products are groundbreaking, but it still does not explain why the company should be worth more than other established car makers combined). But looking at segments of the economy and using economic indicators and their analysis to figure out the growth potential by sector and then, spot those companies that really stand out, is a much better strategy. Data analysis is a much cheaper option than expensive opinions from experts who most of the time don’t deliver results better than average.
Economic data that is simple to understand
Here at Spark SMB Data, we already provide a monthly service with economic indicator analysis for small businesses that use this information to assist in their business and marketing strategies. And speaking to our customers, we found out that many of these entrepreneurs were also using this information for their personal investments.
Thus, we adapted our service to serve both audiences, as a dataset with more than 30 economic indicators is updated monthly, with current analysis focused on providing the information to individual investors and small business owners that was only available before to large organizations and investment firms.
And as we are a company specialized in Data Analytics for small businesses, with a proprietary software, we can provide an effective monthly service that costs as much as an extra cup of coffee.
Join our growing community of customers that are discovering a new way to better understand the market by using economic indicators for online investment.