We can describe fundamental trends as being overall economy movements in the world or in one country. These help the consumer trends and the financial markets to be shaped. The fundamental trends are currently analyzed by governments, business owners and all investment dealers with the purpose of predicting consumer preferences and future corporate growth.
When you incorrectly interpret a trend or you miss the fundamental trend, market volatility appears and inflated commodity prices and/or inflated stocks will appear.
Fundamental Trend Definition
Financial markets are influenced by many different factors. Most of those are temporary like wards, cost spikes and political instability. The short term modifications will bring in a dramatic impact on market liquidity and share prices. Various investment tools are presented on sites like Financial Tipsor and have been developed to help investors take advantage of these as soon as they appear.
The fundamental trends can be described as having a more permanent nature. These are influenced by shifts in technology, knowledge and even underlying views. A fundamental trend will slowly move the market but will have an enduring effect.
As a simple example, we can look at China. The country sees a growth in demand for goods from Western countries and lifestyle standards are rising. When a country rises its living standard, consumer spending patterns are changed forever. Thus, we have a fundamental trend.
Trend Drivers
In order to quickly identify a fundamental trend, we need to understand trend drivers. Some of the best examples include:
- Innovation leaps
- Resource scarcity
- Consumer taste changes
- Economic advancements
A trend that is highly unlikely to be reversed will become a driver and will bring forth a fundamental trend.
Financial Markets And Fundamental Trends
Many believe that a fundamental trend is just positive as the country is influenced by ongoing change. That is not the case. Most of the fundamental trends will be noticed by the forecasters and changes can appear when there is a need to adapt. If there are negative fundamental trends that appear, the financial market will be negatively affected.
According to efficient market theory, fundamental trends are always public knowledge. Because of this, they can be incorporated into future and current pricing. This is usually achieved and correct but we have to understand that there are also other factors that appear and that have an influence. Financial markets are never going to move fluidly and smoothly. Market influences constantly appear. We have sudden pulls and pushes of pricing. Fundamental trends can thus be dampened or amplified.
Not Thinking About Fundamental Trends
Commodity traders, individual investors and stock brokers are practically forced to always be aware of all fundamental trends that appear in a market. These have to be followed in order to predict valuations. We have trends that will impact some industries and trends that will impact the entire market of a country.
Certain industry trends are hard to predict and take advantage of but you should never limit your growth as a financial startup at a psychological level. For instance, when a technological breakthrough appears in processing or manufacturing, growth appears overnight. However, when thinking about the fundamental trends that appear at a large scale, they bring in really good long-term investment opportunities.
Fundamental trends are crucial in investment as they have an impact on both demand and supply. Supply is increased as the trend will improve distribution or production efficiency. Demand will be impacted when the fundamental trend is connected to consumer preferences.
Conclusions
We can say that you make money by simply knowing the fundamental trends that have an impact on the investments you have or you consider since you have a knowledge of what market moves should be done while understanding what market moves have to be avoided. Financial markets are driven by fundamental trends and have an impact on large scale future consumption. As an investor, you simply cannot afford not to know them!