What news, indicators and events move stocks the most?

he share market is so volatile at the moment that it can move sharply the instant any economic news is released. Investors can feel obliged to react quickly and then regret their actions, but it is hard not to be swayed by the news of the day. How does the investor or trader filter through the daily data bombardment for what is really important?

Alan Freshwater, co-principal of RetireInvest, Bondi says investors need to identify their goals and then work out their time frames and level of risk. He says if investors keep returning to their objectives they will find it easier to cut through information overload and sift out what is irrelevant.

Long-term investors may not feel they have to follow the All Ordinaries and the S&P/ASX 200 every day, but doing so will tell them what stocks are popular and which are under selling pressure. The commentary in the stock reports gives an idea of the mood of the market and provides buying or selling windows when a stock’s price moves out of synch. with its value because of a competitor’s poor result or a selling wave across the market.

Share market investors also have to keep a close eye on Reserve Bank announcements. Any rate change by the Reserve will flow through to the money markets immediately via a move in the cash rate but stocks will also rise or fall as strategists assess whether shares are more attractive investments than cash and bonds. Analysts will feed rate changes into their modeling to work how out companies will be affected by borrowing costs as well as the impact of changed consumer behaviour and discretionary spending and this can quickly flow through to share prices.

Alan Freshwater says anyone investing over a five-to-seven year period will see major changes in interest rates and investors need to know where we are in the interest rate cycle for an indication of where the stock market is headed. Freshwater says investors should be reading the Reserve’s statements and announcements for pointers to its thinking on the economy and what action it might take on rates. “The RBA makes regular announcements and it is interesting how quickly they can shift,” he says.

It may be helpful to divide information into a hierarchy, starting with the economy. Global commodity prices will affect the performance of Australian companies so investors should track data such as oil price movements and forecasts.

Those following mining stocks need to follow news reports such as how the annual iron ore negotiations between consumers and producers are going as this may send resource stocks in a different direction to the overall market and will provide an outlook for companies over the coming year.

Investors must shift their focus at times, for instance these days paying closer attention to movements in US interest rates and the US dollar, which will flow through to Australian stocks, the dollar and money markets. Selvarajah says what is happening on US markets is once again a bellwether for Australia.

“Twelve months ago people were more confident in our own economy and regardless of what was happening in the US overnight because we were more focused on our own market. There is much more correlation now, what is happening in the US is a major driver for Australia.”

Although the Dow Jones close is frequently used as a pointer to how the Australian market will move the next morning, many believe the SPI 200 futures index is a better indicator of the next 24 hours on the ASX. The SPI, published on websites such as the “futures” section of the Bloomberg site, gives an indication of market sentiment for the day. Traders and longer term investors wondering if it is a good day to buy or sell can look at whether the SPI has gone up or down the previous day to read how the physical stock market is likely to behave.

At the company level, tracking your stock against its industry index may not be so worthwhile as companies within an index can differ greatly and one large player can give a misleading impression by skewing the index with its weighting.

Austock strategist Michael Heffernan rarely follows sub-indices but has noted that the best performers in the past month were the property trust index and the financial index, proving the sub-indices can surprise by showing the real performances of sectors against how they are perceived.

Heffernan says statements from company bosses are a good sign of how a company is trading. He looks closely for comments on outlook, particularly chief executives talking about strong growth over the coming year as pointers to their confidence in the company.