Economic Indicators and the Stock Market

"Wall Street bounded higher Tuesday, propelling the Dow Jones industrials up more than 100 points and past 13,400 for the first time, after mild inflation figures raised hopes the Federal Reserve might cut interest rates later this year," wrote AP Business writer Joe Bel Bruno on May 15.

Several hours later, he wrote, "Wall Street gave up a huge advance Tuesday, turning mixed in afternoon trading after an unimpressive snapshot of the housing market unsettled investors. The Dow Jones industrials stayed afloat, but struggled to hold onto their first foray past 13,400."

While inflation numbers and housing starts are important indicators of economic trends, it seems that many investors and large money managers pay too much attention to short-term statistics. Maybe these numbers will directly impact bank or real estate stocks, but last month's data should not be a reason for most stocks to rise or fall.

So don't confuse the stock market performance with the economy. For most folk, investing should be about the long-term financial risks and rewards, rather than about short-term strategies.