For beginner investors, financial news tends to sound like a completely foreign language and may even seem unnecessary.
How can you make sense of the numbers, trends, technical terms, and forecasts? Should you care at all?
Here are the steps you can follow to identify what a piece of investing news might mean for you.
1. Identify the type of news and why it matters
Investing news usually shows what’s happening in the economy, how companies are performing, and which way the markets are moving.
Common types of financial news and their potential effects include:
- Company earnings
Companies regularly release earnings reports that show their financial performance over a certain period.
Why they matter:
A company’s stock price tends to go up when earnings are strong or grow higher than expected. The reverse may happen if earnings are weak or fall short of expectations.
Such reports can also hint at how well a business is being managed and whether it’s growing over the long term.
- Economic data
Economic news covers changes in employment data, the prices of goods and services, and the growth of a country’s gross domestic product (GDP), among others.
Why they matter:
Policymakers look at indicators like inflation and employment rates when deciding whether to raise or cut policy rates.
In turn, changes in interest rates can affect many aspects of finance, including borrowing costs and the performance of investments.
When an economy is strong and people have more money to spend, businesses may also have more room to grow and offer better investment returns.
- Government and policy news
Changes in leadership, laws, taxes, and regulations can affect investor confidence, economic growth, and the performance of certain sectors or industries.
Why they matter:
Elections tend to cause market volatility as investors anticipate new leaders’ policy plans, which can set the tone for the economy and financial markets.
There can also be sector-specific policy shifts, which may bring benefits to some industries while negatively affecting others.
- Global and geopolitical news
These include globally relevant factors like trade relations, conflicts, and energy and food security.
Why they matter:
These developments can affect the availability and flow of certain goods across the world. For example, the Ukraine-Russia conflict prompted an embargo of Russian oil.
This conflict has affected the supply and prices of this important energy source.
2. Double-check the data
It’s wise to maintain a critical view of investing news. Taking everything at face value will likely lead to panic and cause you to make sudden, ill-informed decisions.
News sources aren’t always impartial, and some may even pass off their opinions as cold hard facts. You may also hold your own biases that can cloud your judgment.
That’s why you should always cross-check the data, identify possible biases (your own and your sources’), and consult trusted experts before making a big decision.
3. Know when to take action
To quickly interpret financial news or make forecasts, investors and analysts may rely on generalizations or “known” causes and effects, such as “stock prices go up when interest rates go down.”
Remember that the consensus isn’t always right, and the past doesn’t guarantee future performance.
With this in mind, you can use historical data to gain a better understanding of how investing works while remembering that it doesn’t dictate what will happen next.
Once you have a good grasp of the investing news cycle, you may find that you don’t need to react to everything that happens. It can be more productive to focus on your goals than to stress over daily changes.
