LEADING INDICATORS

Definition

A composite index of ten economic indicators that typically lead overall economic activity.

Why do Investors Care?

Investors need to keep their fingers on the pulse of the economy because it dictates how various types of investments will perform. By tracking economic data like the index of leading indicators, investors will know what the economic backdrop is for the various markets. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market prefers less rapid growth and is extremely sensitive to whether the economy is growing too quickly-and causing potential inflationary pressures.

The index of Leading Indicators is designed to predict turning points in the economy such as recessions and recoveries. Incidentally, stock prices are one of the leading indicators in this index. However, it is important to remember that all the components of the index have been reported earlier in the month so that the composite index doesn't hold the same fascination for market players as it does for the non-financial media which tend to give it more press than it deserve