Gross Domestic Product
Gross Domestic Product (GDP) is the broadest measure of aggregate economic activity and encompasses every sector of the economy.
Why do Investors Care?
GDP is the consummate measure of economic activity. Investors need to closely track the economy because it usually dictates how investments will perform. The stock market likes to see healthy economic growth because that translates to higher corporate profits. The bond market doesn’t mind growth but is extremely sensitive to whether the economy is growing too quickly and paving the road to inflation. By tracking economic data like GDP, investors will know what the economic backdrop is for these markets and their portfolios.
The GDP report contains a treasure-trove of information which not only paints an image of the overall economy, but tells investors about important trends within the big picture. GDP components like consumer spending, business and residential investment, and price (inflation) indexes illuminate the economy’s undercurrents, which can translate to investment opportunities and guidance in managing a portfolio.