{"id":27534,"date":"2026-05-11T09:00:42","date_gmt":"2026-05-11T07:00:42","guid":{"rendered":"https:\/\/my-life.lu\/?p=27534"},"modified":"2026-02-18T10:03:57","modified_gmt":"2026-02-18T09:03:57","slug":"what-indicators-should-investors-use-for-guidance-30159","status":"publish","type":"post","link":"https:\/\/my-life.lu\/en\/what-indicators-should-investors-use-for-guidance-30159\/","title":{"rendered":"What indicators should investors use for guidance?"},"content":{"rendered":"<p class=\"entete\">No single piece of data can tell you whether it is a good time to invest in the stock market, or which companies will make you the best return. However, taken in combination, it is possible to build a picture of the relative health of an economy and of individual companies, and also to determine whether valuations look cheap or expensive.<\/p>\n<p>The following are the most important economic indicators.<\/p>\n<h2 id=\"h2_0\" >Government bond yields<\/h2>\n<p>James Carville, a strategist in Bill Clinton\u2019s successful 1992 presidential election campaign, once said: \u201cI used to think that if there was reincarnation, I wanted to come back as the president or the pope, or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.\u201d<\/p>\n<p>In an era where most Western governments have very high levels of debt, the bond markets \u2013 at least in theory \u2013 rule the world. Governments turn to bond markets to raise debt to fund their spending requirements, and the price they pay for that debt in interest rates depends on bond investors\u2019 view of their creditworthiness, alongside other factors such as expectations of future <a href=\"https:\/\/my-life.lu\/en\/understanding-inflation-51061\/\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\"><strong>inflation<\/strong><\/span><\/a>, and the current levels of interest rates and economic growth. If bond yields rise and debt service costs become a major burden, governments may need to cut spending or raise taxes.<\/p>\n<p>Bond yields are also an important factor in <a href=\"https:\/\/my-life.lu\/en\/mortgage-how-is-your-rate-calculated-10055\/\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\"><strong>determining mortgage loan rates<\/strong><\/span><\/a> and other types of consumer borrowing. They can have an impact on household finances, consumer spending and economic growth.<\/p>\n<blockquote><p>Gross domestic product is the standard measure of economic growth.<\/p><\/blockquote>\n<h2 id=\"h2_1\" >GDP growth<\/h2>\n<p>Gross domestic product is the standard measure of economic growth. It takes into account the total monetary value of all finished goods and services produced within a country, its output, money invested by businesses and spending by households and government, expenditure, and business profit, household income and government tax revenue (income). If GDP is growing, a country\u2019s net wealth is increasing, which should create a better environment for companies to increase their revenue and profit.<\/p>\n<h2 id=\"h2_2\" >Inflation<\/h2>\n<p>Inflation is the rate at which overall prices of goods and services is rising. The European Central Bank has an annual inflation target of 2.0% \u2013 considered to be the level that strikes the right balance between price stability and economic growth. High inflation is problematic for businesses and consumers, making it difficult to plan expenditure and usually leads to higher interest rates. <a href=\"https:\/\/my-life.lu\/en\/what-are-the-different-types-of-inflation-30139\/\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\"><strong>Deflation<\/strong><\/span><\/a> is also difficult to manage because falling prices can prompt people to delay spending, leading to economic weakness. The ideal environment is where inflation is low and predictable.<\/p>\n<blockquote><p>Central banks set interest rates to control inflationary pressure in the economy, ideally not at a level that will constrict economic growth by making borrowing for investment excessively expensive.<\/p><\/blockquote>\n<h2 id=\"h2_3\" >Interest rates<\/h2>\n<p><a href=\"https:\/\/my-life.lu\/en\/key-rates-and-their-impact-on-the-economy-30141\/\" target=\"_blank\" rel=\"noopener\"><span style=\"text-decoration: underline;\"><strong>Central banks set interest rates<\/strong><\/span><\/a> to control inflationary pressure in the economy, ideally not at a level that will constrict economic growth by making borrowing for investment excessively expensive. Central bank rates determine the rates at which banks lend to businesses and households, and the interest they pay out on savings. In setting rates, they consider the current rate of inflation, including wage inflation and the overall strength or weakness of the labour market. High inflation usually leads to higher interest rates, as in the aftermath of the Covid-19 pandemic in 2022.<\/p>\n<h2 id=\"h2_4\" >Market sentiment and confidence indices<\/h2>\n<p>Most economic indicators are backward-looking, telling economists what was happening two or three months ago. Purchasing managers indices seek to be a forward-looking indicator, using regular surveys of business executives to assess whether they are feeling positive or negative about the future for their company and their market.<\/p>\n<p>They are compiled by organisations including the US Institute of Supply Management, index provider S&amp;P Global and London-based data and analytics provider IHS Markit Group. Their readings use a threshold of 50 to demarcate expansion and contraction \u2013 a score above 50 indicates an industry or activity that is expanding; one below that level suggests that business is shrinking. This is just one type of confidence measure relevant to the economy \u2013 others include consumer confidence, which has a bearing on whether consumers are inclined to buy homes or cars, or make other big purchases that would help to stimulate the economy.<\/p>\n<p>Then there are company indicators.<\/p>\n<h2 id=\"h2_5\" >Price to earnings ratios<\/h2>\n<p><span style=\"text-decoration: underline;\"><strong>A company\u2019s price to earnings ratio<\/strong><\/span>, which measures a company\u2019s market valuation \u2013 its share price \u2013 divided by its current earnings, has become a widespread shorthand for whether it is over-valued or under-valued. A high figure suggests new investors would have to pay a lot for the current level of earnings, while a low reading may suggest that a company is a bargain.<\/p>\n<p>However, the price to earnings ratio is not forward-looking, and is hence not a useful indicator of whether a company\u2019s earnings are likely to improve or deteriorate. There are some adaptations \u2013 forward P\/E looks at projected earnings, while the Shiller P\/E measure involves cyclically-adjusted earnings.<\/p>\n<h2 id=\"h2_6\" >Dividend yield<\/h2>\n<p>Dividend yield is the level of dividends paid by a company relative to its share price, usually expressed as a percentage. A high dividend yield suggests that investors are receiving high dividends relative to the price at which shares are being traded. However, it can also be a sign of distress, and that the market expects the dividend to be lowered. Companies tend to pay lower dividends while they are young and growing rapidly, preferring to reinvest profit in the business. Higher dividend yields tend to be a characteristic of more mature companies.<\/p>\n<h2 id=\"h2_7\" >Price to book ratio<\/h2>\n<p>Price to book ratios can also help judge whether a company is accurately priced. It looks at a company\u2019s share price, relative to its book value \u2013 the net asset value of a company, calculated by subtracting its total liabilities from total assets. If a company\u2019s price to book value is low, it suggests the shares may be cheap. At less than 1, for example, it indicates that the company\u2019s market capitalisation is less than the overall value of its assets.<\/p>\n<blockquote><p>An ebitda margin of between 10% and 20% is generally considered to be solid, while anything above 20% would be seen as strong<\/p><\/blockquote>\n<h2 id=\"h2_8\" >Ebitda<\/h2>\n<p>Ebitda stands for Earnings Before Interest, Taxes, Depreciation, and Amortisation. It is a measure of a company\u2019s financial performance. Because it is a measure of profitability adjusted for non-operational factors such as taxation, it is useful to understand a company\u2019s core operating capability.<\/p>\n<p>A high level of editda should indicate strong operational efficiency and profitability, but levels vary considerably by industry, so is often more useful to compare companies in the same sector. An ebitda margin of between 10% and 20% is generally considered to be solid, while anything above 20% would be seen as strong.<\/p>\n<h2 id=\"h2_9\" >Return on investment!<\/h2>\n<p>Return on investment is a measure of how well a company uses its resources and the return it obtains from the investments it makes. It can be used for a company overall, but also for individual businesses. It is expressed as a percentage, and calculated by dividing an investment\u2019s net profit (or loss) by its initial cost, where higher means better. However, it does not account for the holding period, and therefore may not capture the opportunity cost of holding one investment rather than another.<\/p>\n<p><em><span style=\"font-size: 14pt;\">Professional investors use some or all of these indicators when deciding whether a market or an individual company is worth investing in. None provides a full picture, but used in combination, they can help guide investors to areas of opportunity.<\/span><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>No single piece of data can tell you whether it is a good time to invest in the stock market, or which companies will make you the best return. However, taken in combination, it is possible to build a picture of the relative health of an economy and of individual companies, and also to determine &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/my-life.lu\/en\/what-indicators-should-investors-use-for-guidance-30159\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;What indicators should investors use for guidance?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":4,"featured_media":27531,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":"","beyondwords_generate_audio":"1","beyondwords_integration_method":"rest-api","beyondwords_project_id":"44704","beyondwords_content_id":"e3d8ddbd-e6f7-4030-8e2d-9fb713bf54dc","beyondwords_preview_token":"57370a6a-48d5-4ad8-834a-21a2e289206d","beyondwords_player_content":"","beyondwords_player_style":"standard","beyondwords_language_code":"en_GB","beyondwords_language_id":"","beyondwords_title_voice_id":"775","beyondwords_body_voice_id":"775","beyondwords_summary_voice_id":"775","beyondwords_error_message":"","beyondwords_disabled":"","beyondwords_delete_content":"","beyondwords_podcast_id":"","beyondwords_hash":"","publish_post_to_speechkit":"","speechkit_hash":"","speechkit_generate_audio":"","speechkit_project_id":"","speechkit_podcast_id":"","speechkit_error_message":"","speechkit_disabled":"","speechkit_access_key":"","speechkit_error":"","speechkit_info":"","speechkit_response":"","speechkit_retries":"","speechkit_status":"","speechkit_updated_at":"","_speechkit_link":"","_speechkit_text":""},"categories":[186,188,15],"tags":[400,413,586],"class_list":["post-27534","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-savings-en-2","category-investment-en","category-myinvest-en","tag-investment","tag-savings","tag-profil-dinvestisseur-en","my_invest"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v27.3 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>What indicators should investors use for guidance? 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