How to Analyze the Stock Market

Analyze the Stock Market
Analyze the Stock Market

How to Analyze the Stock Market. The stock market is influenced by several factors including the economy at large, current events, regulatory decisions and investor perceptions. It can be difficult to sort out what factors are influencing the market and individual companies within it. By examining the market from the top down you can start to understand the interrelation of these factors.

Big Picture

Look at the economy as a whole to get the big picture. The economy underlies everything the stock market does. By understanding the macroeconomic view you can get an idea of trends in the market. Start by looking at the Gross Domestic Product growth rate to see how fast the economy is growing.

Look up current rates of inflation to see how much a dollar today will be worth tomorrow. Inflation is tracked with indexes such as the Consumer Price Index and Producer Price Index.

Research other economic data such as job growth statistics and reports from the Federal Reserve. The Federal Reserve Board regulates banks, controls inflation and stimulates economic growth. Because it has a powerful regulatory role the market watches the Fed's reports closely and they often become self-fulfilling prophecies.

Read a newspaper to find out what external forces may be affecting the stock market. Look closely at politics, world events and current fashions.

Current Performance

Look at current performance in the stock market. Market indexes such as the Dow Jones Industrial Average or the S&P 500 provide a summary of the market's current performance.

Determine which industries are up and which are down. Also look for companies that are moving opposite their industry. This can be a sign of unique characteristics or it could be a sign of things to come for the whole industry.

Try relating this information with the macroeconomic information that you gathered. It may be helpful to look at financial news sources for additional explanations of current performance.


Choose a company to research in depth. Perhaps you found a company that is behaving differently than its competitors. This would be a good target for further analysis. Otherwise choose a stock you may be interested in buying.

Look up the company's public financial information. A recent annual report or quarterly earnings statement will be sufficient.

Consider information in per share terms. You can't compare across companies with total numbers like revenues or earnings, but if you convert them to per share information, the comparison is easy. You can find per share data on many websites and in some of the financial reports filed be the company. Or you can convert the data yourself by dividing the total figures by the number of shares outstanding.

Compare quarterly growth using percentages. If a company increased its sales from $1 per share to $1.10 last year, then this year it will have to grow by more than $.10 per share to continue growing at the same rate.

Examine the companies' balance sheet. The information there is an effective way to compare the financial strength of two or more companies.

Technical Perspective

Analyze your stock's technical situation. Technical analysis interprets trends in volume and share price to determine when to buy or sell stocks.

Gather charts showing per share price and volume fluctuations over different periods of time. Check if your stock is below or above its 50 and 200 day moving averages.

Research technical indicators that will help you understand your company's stock better. One helpful tool is the stock's moving average.

Check your stock charts for any indicators that you consider helpful.

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