Industry trends are continuing occurrences that can change an industry in positive or negative ways. Industry trends can affect the performance of specific companies, which means they can affect the stock performance of those companies.
If you invest in single stocks, bonds, commodities or precious metals, you'll need to be able to track industry trends if you want to protect your investment portfolio and increase your gains. That means understanding the "trends" definition in business.
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Basic Macroeconomic Trends
Don't confuse economic trends with industry trends – although you'll need to track both for optimal investing. An economic trend has to do with a country's overall business and employment numbers.
For example, a recession or boom, bear market or bull market or high or low unemployment levels are common economic trends. If you can identify macroeconomic trends, you can apply that information to specific industries and then specific companies.
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Marketplace Obsolescence Trends
A common industry trend is the maturity, decline and eventual failure of a product or service or consumer or business practice. A classic example of obsolescence is the horse and buggy. Once automobiles become affordable for the masses, the writing was on the wall for horse and buggy makers.
Investors also saw that companies that made buggy whips, saddles, reins and other products related to the horse and buggy were going to eventually close up shop. In some cases, companies adapted. For example, companies that made seats for buggies could change to making seats for cars and trucks.
With more people working from home during the pandemic, offices are needed less, affecting business real estate, office furniture, copy machines, business phone systems and countless other office-related products and services.
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Technology Disruption Trends
The changes in technology today are occurring at breathtaking speed. Not only do technological trends impact electronic products, but they also impact countless industries. For example, mobile phone apps that make it easy to order food, pay for it and get it delivered have changed the restaurant business. More and more people are dropping cable television in favor of the many new streaming and online program options. The movie industry is moving toward more streaming as people watch movies on their large flat-screen TVs at home, rather than going out to theaters.
Move to Online Buying
As more and more people shop and purchase online, the retail industry has experienced a trend of fewer people shopping at brick-and-mortar stores. Not only do major retailers now have to sell online to stay in business, but they also have to compete by creating attractive e-commerce systems that make shopping, checking out and paying easy for consumers.
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Examining Industry Trends
As an investor, you won't need to worry too much about industry trends if you've got your money in a 401(k) or mutual fund that's managed by professionals. It's their job to watch for trends and react to them.
If you've purchased one or a few "name" stocks like Facebook, Apple, Google or Amazon and plan to watch them grow over the years, it's important to keep an eye on their industries for any trends that might signal a decline in those stocks' performance. Some trends, such as new competition or technologies, are more common than others, according to EconomyWatch.com.
Industry trends can include new competitors, new technologies, new legislation or different preferences among upcoming generations. For example, hacks and government investigations might lead to new legislation that affects the business models of Apple and Facebook. Increased taxes for online retailers and unionization of delivery drivers would impact Amazon's earnings.