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- 1). Read analysts' market predictions. Stocks are too plentiful to learn about all of them and predict general market performance on your own. Market analysts select a company or industry and then follow it closely. They're able to give educated guesses about how specific stocks will perform.
- 2). Study the general condition of the economy. In a healthy, booming economy, businesses focused on entertainment and pleasure will get a larger share of the market. In an unhealthy economy or during a recession, health care and necessities like food will get the lion's share of the profits. John M. Schoen, a senior producer at MSNBC, explains that health care companies usually do well in any economy because people will always get sick -- and maybe even more when the economy is bad.
- 3). Select several stocks to follow. Look up their past performance on the market by reading stock quotes. One such quote generator is located at dailyfinance.com. Consider going back four years. Create a graph showing fluctuations in the stock. If you can see a decline in profits over several recent years, it's a bad sign for investing in that company. If the stock seems to be consistently in demand and trading at higher prices, you will know that it could be a good investment.
- 4). Look at different indexes. Don't only follow the Dow Jones Industrial or the Nasdaq Composite. Look at the Russell Stock Exchange, which hosts mostly smaller stocks that tend to do better in recessions. The overall health of a particular index is often biased toward stocks with a larger market capitalization, meaning that larger companies' stock performance affects how the index is performing more than smaller stocks. Some indexes, like the Dow Jones Industrial, are weighted according to the price of the stock -- the higher the price of a share, the more effect it has on the performance of the index. Indexes can give you a good idea of how an industry or area of the market is faring, but you should look up your stock in the market to see how it is performing individually.
- 5). Analyze the interest rate on government treasury bonds at treasurydirect.gov. Dr. Steve Sjuggerud, who wrote about international currencies for his Ph.D. dissertation says "As a general rule, stocks do well when interest rates are coming down, and they struggle in the face of rising rates."
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