Indicators shed light on expected performance
An indicator is any measure or factor that helps predict future trends in the industry or economy. Some indicators might coincide with or follow a trend. If they can help confirm this trend, they’re called “coincident” and “lagging” indicators.
Stock prices are influenced by a number of factors. These include macroeconomic factors at the top level like GDP (gross domestic product), employment growth, and inflation. Then, there are sector-specific factors like payments volume growth in the consumer finance sector. Finally, the stock price is influenced by company-specific factors like management and product offerings.
Consumer finance indicators
The series focuses primarily on card companies in the consumer finance sector. You can monitor the performance of the consumer finance sector by tracking certain key indicators:
- state of the economy gauged by GDP growth, employment growth, and wage levels
- consumer spending and consumer confidence
- revolving credit and card loans
- charge-off rates
- interest charges on card loans
- payments volume growth
- the impact of advances in payments technology—growth in mobile payments
- retail sales
- credit card penetration
The series analyzes the current trend in the above indicators and how they’re expected to impact the card companies in the sector. The biggest card companies in the US include American Express (AXP), Visa (V), MasterCard (MA), and Discover Financial Services (DFS). Visa forms ~2.50% of the SPDR Dow Jones Industrial Average ETF Trust (DIA).
The above graph shows the movement in IYG prices over a year. Other consumer finance businesses like auto, student, and mortgage lending aren’t covered in this series.