Gross Domestic Product (GDP)
Commonly used as a general gauge of economic health for a nation, Gross Domestic Product, or GDP, can be a huge influence on your investment returns. Basically, GDP is the total amount of services and goods produced in a given country’s borders. This includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.
As you would expect, this measurement of a nation’s economic health has a huge effect on stock market returns. Any significant change in GDP- up or down- usually has a significant effect on the direction of the stock market. For example, when an economy is healthy and growing, it is expected that businesses will report better earnings and growth. Obviously, these sorts of higher profits please investors of all stripes and will push them into equities. At the same time, lower GDP measurements can have the opposite effect on stock prices as businesses begin to suffer.
A prime example of this was during the recent Recession. As U.S. GDP fell and contracted, broad stock market indexes - like the SPDR 500 S&P - sank to decade lows.