Factors Influencing the US30, S&P 500, and Nasdaq Markets
Factors Influencing the US30, S&P 500, and Nasdaq Markets
August 29, 2024 in Forex Signals Strategies
Factors Influencing the US30, S&P 500, and Nasdaq Markets
This report discusses the factors that affect the US30, S&P 500, and Nasdaq markets in the United States. The three indices are critical for the markets and hence act as a barometer for the entire global financial market. The factors affecting these indices are therefore of particular interest to all those involved in global finance.
The report is organized as follows. The first section consists of this introduction with the aim, scope, and outline of the paper. In the second section, I explain the theoretical part which talks about how trading economics is linked to changing balances of power between nations, developments in technology, demographics, energy interests, and environmental concerns. The third section provides an overview of the markets, discusses the main indices on Wall Street, their roles in the stock market, and the factors affecting these indices. The main part of the report is found in Section 4, which reports on the factors affecting the US30, S&P 500, and Nasdaq markets in the United States. The factors included in the analysis are the important macroeconomic indicators affecting price actions in the markets and other news on earnings, tech, and geopolitics to be aware of when trading global markets. Section 5 of the report discusses the implications of the analysis I completed in section 4.
1.1. Background and Significance
The S&P 500 is an index of 500 of the largest exchange traded companies in the US. The Nasdaq 100 Index is made up of giant technology companies such as Apple, Amazon, Google, and Facebook. The US30 Index contains the top publicly traded companies in the US, including industrial and financial giants. The United States economy and its stock markets seem to be divided into three systems: the New York Stock Exchange, the American Stock Exchange, and the National Association of Securities Dealers’ Automated Quotations (the Nasdaq). These three indicators are assumed to represent those markets and are supposed to contain the necessary information that provides insight about the other stock markets around the world.
The evolution of consumer spending is the most significant factor likely to influence stock prices in the future. The second and third most important factors are currently the savings rate and the unemployment rate. Increases in consumer spending are usually realized with new technological growth — particularly for the Nasdaq market. Increases in consumer spending can also be realized with tax cuts; when the government spends additional dollars, it makes up the difference with tax cuts most of the time. Financial markets seem to ignore labor productivity, inflation, and interest rates — thus the lack of importance is anticipated or due to better anticipation in the future. The markets also seem to be affected by longer-term interest rates and new housing permits.
1.2. Purpose and Scope
The purpose of this analysis is to gain insight into the factors influencing the financial markets in the US, i.e. the US30, S&P 500, and Nasdaq, due to recent large shifts in their values. To the best of the authors’ knowledge, there is a lack of academic research on ESG disclosures and the financial markets in the US, especially sustainable investment, as compared to their European counterparts. As such, ESG issues are not currently priced in to a significant extent in the financial markets in the US. It is therefore hypothesized that there is an association between the market values of the US markets and macroeconomic fundamentals and realized sustainable investment flows, such as if inflation is low, then institutional investors are more likely to invest in climate-related ETFs. This study will take a step closer to answering whether the financial markets in the US sensitivity to macroeconomic fundamentals and realized sustainable investment flows correlates with movements in the market yields on 5/10/30-year US Treasury Bond Yields, as well as movements in the SPY which tracks the S&P 500 Index.
The scope of the study is confined to establishing listed companies’ weighted proportions of energy consumption they account for the United States (US), in order to determine the extent of influence they have over the US infrastructure for which President Joseph (Joe) R. Biden Jr. is currently passing laws to change the energy and operations they provide from using greenhouse gas (GHG) emitting resources to non-emitting sources. Furthermore, the study aims to ascertain whether or not the US economy is still largely energy-related and whether investments have been directed towards the energy sector or integrated in an environmentally friendly or lower GHG emitting portfolio. The populations observed for this study are the companies listed by the New York Stock Exchange, the NASDAQ, and the American Stock Exchange. Any companies overseas from the US are stated in accordance with the listing on these exchanges.
2. Macroeconomic Factors
Macroeconomic events have a significant impact on the three indices. Interest rates, as determined by the Fed, have a significant impact on investment decisions. A change in interest rates will create a change in inflation, which affects the macroeconomy, spending on big projects, capacity utilization, and appreciation of the dollar (payment of labor and some raw materials import affected). Interest rates increase when loanable funds are scarce and will decrease when loanable funds are excessive. In addition, an increase in interest rates makes corporate bonds more attractive than investing in stocks, and the stock market will likely face selling pressure. When people buy a lot of government bonds, bond prices increase and interest rates decline. Also, lower interest rates encourage people to go to the stock market, which is generally considered the best way to get a higher rate of return.
The historic inverse relation between the S&P 500 and the U.S. inflation rate can offer useful insights. Over time, we can see that the S&P 500 moves in opposition to movements in the inflation rate. Since 2009, the U.S. has seen a period of ultra-low rates, another period of rising rates, and a significant period of low rates from 2020. This qualitative view of the stock market demonstrates that if we can properly identify the effect of interest rates on the economy and inflation, then stock market price action can be more accurately understood. Finally, the impact of GDP growth and the stock market has been well documented, and a growing number of investors today utilize a top-down approach to investing in stocks, industries, and indexes. In this scheme, if the U.S. goes into a recession, then the stock market as a whole is at risk of decreasing. Superior GDP growth could indicate that the stock market is undervalued, and conversely, lower GDP growth indicates that the stock market is overvalued.
2.1. Interest Rates
Interest rates are the amount of interest charged by a lender to a borrower for the use of assets. The influence of interest rates on the markets is well understood, and a rise in rates is usually negative for stocks. However, the effect on the equity markets depends on whether the increase was expected or not. There have been many studies on whether the stock market performs better in lower interest rate periods or vice versa; both arguments have been supported to an extent.
In general, a rise in interest rates would cause a fall in bond prices as the return on new bonds is more attractive than the older bonds. Investors sell bonds in the secondary market to buy new ones at a higher yield. Higher interest rates increase the cost to companies in paying back interest payments on loans. The US Treasury yields also represent the risk-free rate, hence a rise here would also increase the overall risk to the economy. Both of these factors are negative for equity markets and would cause the stock market to sell off. Stocks can also fall if the transition from “low” interest rates (a loose monetary policy environment) to “high” rates happens too quickly and sends the US equity markets into a recession. Hence, fast and sharp rises could be negative, especially if it causes the US dollar to suddenly strengthen, weakening the health of America and thus hindering US exports. On the flip side, back in the period before 2008, a decrease in interest rates is a positive event for the stock market as there is a movement of funds from fixed deposits to stocks.
2.2. Inflation Rates
In the prior section, structural breaks were analyzed in relation to the US30, S&P 500, and Nasdaq. Of particular note were the large quantities of structural breaks detected in each index (41, 50, and 102 respectively). This section will observe the impact of inflation rates on the three different markets. As usual, this portion will narratively analyze the data in an effort to provide insight into how inflation rates have a crucial effect on various markets.
There is a clear bell curve structure to both the S&P 500 and the Nasdaq, with the latter most influenced by higher levels of inflation (5.4% around the mean). The US30 was least influenced by inflation, with a broad range, only a moderate kurtosis, and no variation in just the inflation rate (see Table 2.5). All three markets were negatively influenced by low levels of inflation, indicating that deflation indeed is a negative force according to the data. There are certainly structural shifts in the US30. Inflation rates can be seen to have a continually negative effect as the rate increases. It is not until the inflation rate is just above -1 times the standard deviation from the mean that it swaps from being negative to positive. Even then, it remains to register as an insignificant effect. This implies that the mean used may not be reliable as an accurate measure of market activity as it is being predominantly skewed by negative inflation values. The S&P and Nasdaq show a change in effect above the mean, and each index’s plots are more narrow at peak value. Further, structural shifts are detected for the S&P once the inflation rate is beyond 1.5 times the mean and for Nasdaq above 1.6 times the mean. Overall, of the three indices, the most consistent structure in market activity was established for the S&P, as it continually diminished with rising inflationary levels.
2.3. GDP Growth
The GDP of any country is central to its economic health as it reflects the overall production and output in the country. Over the years, economists have studied the relationship between the stock market and the economy, and the general view is that stock market indices like the US30, S&P 500, and Nasdaq are considered as leading economic indicators. This implies that the direction in which these markets trade can give early trading signals about the possible direction of the economy.
There are a few global indices that exist to monitor the economic performance of various countries. An example of such an index is the Organisation for Economic Co-operation and Development (OECD) (2016) composite leading indicator (CLI). The CLI is widely studied for its ability to provide early signs of how the economy will fare in the near future. Among other elements, this indicator monitors GDP as well as the performance of national stock indices.
Real GDP growth for the US, aggregated, is an important neglected variable in the current portfolio selection literature according to the Efficient Market Theory. Also, real GDP growth is an important neglected input for option and other derivatives valuation in the risk-neutral valuation formulation according to the same theory. These markets stand out in the world and contribute to the growth of the American economy at large. Performance on these markets (specifically positive performance) is, therefore, linked to the health of their underlying economies. Economic growth will naturally also have implications for aspects like the unemployment rate, foreign direct investment (FDIs), and the housing market, all of which could be subjects of future inquiry when GDP growth has been established as an essential input to stock market performance.
3. Market-specific Indicators
This final section of our article will now focus on 3 indicators that are specific to a particular market, which is the US30, S&P 500, and Nasdaq in the case of our analysis. These indicators were determined to have had a strong correlation with changes in the indices and their use in the correct context may offer additional information when attempting to determine how an index may change in the future. This is merely a starting point in this respect, and so it is understood that market participants will need to contextualize this data into their own strategies and other factors will need to be taken into account. This does not mean that the indicators are unimportant, nevertheless.
One study on the relationship between the stock market and news releases looked at the impact of core and non-farm payrolls for the S&P 500, and established that when companies released low earnings, often the stock prices of that company would fall. The S&P 500 index can be seen to decrease 9 to 12 weeks after earnings are released. On average, earnings are estimated to decrease by approximately 2 to 4%. There is a negative correlation between earnings and monthly changes in the stock market which constitutes significant results with a T-value of approximately 1.87. The results and the direction of the relationship hold for standard OLS estimation and two-step estimation with the Newey-West variance-covariance estimation that is robust to both heteroskedasticity and autocorrelation. The size of the negative correlation suggests that earnings explain between 3.0% to 7.6% of the movement in the S&P 500.
3.1. Earnings Reports
Earnings reports take center stage in this section. It will be examined how “Earnings” affects each of these indices as reported by Reuters. According to Reuters, earnings, positive earnings reports, or “Beats” are the single most significant contributing factor to whether a stock will increase in value or decrease in value on the day that it’s reported. Generally, as the overall index increases with stock still to report, it is increasingly tough to “beat” the gain of the U.S. equities. A 3% average loss is expected. Typically, as long as there are still stocks yet to report that have not yet done so, the indices are generally shored up if they stumble. With 45% of the S&P 500 members having reported, that appears to be the case. As a rule, investors are more reluctant to sell at lower prices with positive earnings reports hitting the wire. The opposite is also the case.
Overall, the average gain for the US30 pre- and post- their earnings release over the past year has been 64 basis points on the day of earnings, with a cumulative gain of 113 basis points. The average daily range is 320 basis points over the last 252 trading days. The average gain for the S&P post- their earnings release over the past year has been 15 basis points on their day of earnings, with a cumulative gain of 5 basis points. The average daily range is 62 basis points over the last 330 trading days. The average negative impact for the S&P 500 “the day of earnings released” is 50 basis points over the last 11 quarters. The average gain for the Nasdaq post- their earnings release over the past year has been 13 basis points on their day of earnings, with a cumulative gain of 59 basis points. The average daily range is 150 basis points over the last 330 trading days. The average negative impact for the Nasdaq “the day of earnings released” is 21 basis points over the last 11 quarters. The Dow has an 83% probability of the S&P trading in positive territory on the following day as the DJIA after a prior day average gain of around 24 basis points, with the average remaining range anticipated to be 0.41%. The same day Nasdaq has a 75% probability of the S&P 500 trading in positive territory on the following day after a prior day average gain of around 16 basis points, with the average expected final range being 1.9%.
3.2. Market Volatility
As well as being a haven when there are global economic and political uncertainties, another key attribute of the US stock markets is that they generally offer much more market volatility than other indices, such as the UK100, France 40, South Africa 40, Japan 225, etc., and than other asset classes, such as gold, oil, forex, etc. The key drivers of volatility for the US30, S&P 500, and Nasdaq markets are the announcements and economic indicators from the USA affecting the US and world economies, as well as global geopolitical events and the foreign policies being pursued by the USA. In addition, specific company announcements, such as company earnings, political elections, annual general meetings, etc., provide extra volatility for these companies’ shares and thus the stock markets they are part of. As the profits of these companies and the value of stock increases, so does the value of the stock market itself. As the stock market is a leading indicator of America’s economy, increased company profits and financial management equals bigger, more lucrative companies, which equals more revenue and further growth.
The Dow Jones Industrial Average (“US30”) and S&P 500 are based solely upon the 30 and 500 largest companies in the USA, and these are therefore a very good barometer for the health of America and their performance on a daily basis can affect global stock markets. The Nasdaq Composite Index is a stock market index of the common stocks and similar securities (e.g., ADRs, tracking stocks, limited partnership interests) listed on the NASDAQ stock market. When stock prices rise, profits rise as well, which in turn increase earnings. This increased status of profit is not only confined to a specific industry but the stock market overall. Profitable companies constitute a healthy economy. When the concerned economy or companies grow in capital, the stockholders are then provided a level of return on their investments and are then more willing to invest in the stock market.
3.3. Liquidity
3) 3.3. Liquidity
In this section, the authors offer a new insight into a market-specific determinant: liquidity. They propose to study the manner in which liquidity affects the mentioned markets may differ from one another. Previously, it has been demonstrated that volume and open interest are very important determinants of liquidity, as the authors also show. However, they argue that volume and open interest can also be seen as a direct result of liquidity. Therefore, to ensure their results are a true reflection of the impact of liquidity on the stock indices, they employ the illiquidity formula of Amihud. Their qualitative approach also suggests that the three markets are different and define liquidity in a slightly different sense.
Reducing liquidity can reduce the effect of news on asset prices. Liquidity levels of the markets reveal that the S&P 500 market tends to have the highest liquidity, while the US30 market is the least liquid market in general. The authors estimate the impact of changing liquidity for a short period on the US30, S&P 500, and Nasdaq markets. They accomplish this by following the approach of Amihud, who is actually the maker of the illiquidity measure. This measure is linked to similar findings in the literature. The authors demonstrate that the trade-off of costs and benefits that they consider is represented in Amihud’s measure.
The results of the U.S. stock markets presented in Appendix A for the merits of the stock index markets are as follows: a decrease in the market’s liquidity results in a smaller positive (or a bigger negative) return after the release of the OK news. This indicates a mimic of prevailing market sentiment after the release. The liquidity effect (LE) only could be captured in the US30 market. In the other two markets, there is no indication for a distinctive liquidity effect.
4. Geopolitical Events
Geopolitical events can have an impact on major stock market indices, including the US30, S&P 500 (S&P), and Nasdaq. In this section, we will look at three such events that took place in recent years: trade wars, legislation, and regulation. These processes routinely occur in the US and abroad, and given the interconnectedness of financial markets, they can indirectly impact each other. For example, if a trade war occurs, then a war may follow. Similarly, if one country imposes legislation upon an industry, other countries may feel the need to regulate that same industry as well. While these processes may take years to have an impact, they can lead to a systematic market downturn, subsequently impacting stock indices. We assessed the reaction of these three economic events on the US30, S&P, and Nasdaq on the event date, the day after, the week of the event, the week after, the month of the event, and the month after to analyze the overall effect of these events on the three stock market indices.
A trade war occurs when two or more nations engage in economic conflicts by raising tariffs or placing other regulations on each other’s goods. The purpose of a trade war is for nations to take down tariffs on goods, which will lead to more trade and more money coming into the countries. U.S. President Donald Trump began a trade war with China by imposing tariffs on solar panels and washing machines on January 22, 2018, through the Trade Act of 1974. President Trump continued to impose tariffs on 1,300 product lines by 25% with a value of 46 billion dollars on March 23, 2018. In response, China placed 25% tariffs on goods such as soybeans and various U.S. cars on April 2, 2018. On July 10, 2018, the Trump administration published a third list of goods from China that would be tariffed at an additional 10% for 200 billion dollars if China decided to place tariffs on US goods and remove tariffs. If China did not, then 200 billion in goods would be tariffed at 25%. So far, the U.S. has levied tariffs on 250 billion worth of Chinese goods, with China retaliating with tariffs on 110 billion worth of U.S. goods. The U.S. has threatened to impose an additional 10–25% tariff on 267 billion worth of Chinese goods if China imposes tariffs on 60 billion worth of goods.
4.1. Trade Wars
2) 4.1. Trade Wars
When discussing the US30 and President Trump’s tariffs, we can look back to the beginning of the negotiations that have resulted in the US mounting a trade war with many countries in the world. The trade war between the US and China might end now that Joe Biden is president, but this remains to be seen. The other trade wars are not having too much impact on the markets. However, trade wars in general have been seen to play a major role in stock market movements in these last few years. Uncertainty can lead companies to lose profits or even make financial losses if they are not hedging correctly. Another impact of trade wars is an increase in product prices. This can also have an impact on companies or related parties who rely on the final product for their business dealings. Economically, trade is a major factor in a country’s GDP. With reduced revenue from sales to China or Europe, for example, a country may miss out on a significant chunk of its sales. This effect also happens at an organizational level, as reduced exports lead to reduced business activity.
On top of all that, normally when trade tensions heat up, the gold price usually rises. However, the price started increasing before Trump came into office back in 2017. Concerns, fears, and tension over the effect of increasing tariffs are usually caused by a change like this in the gold market. As the US30 flourished before the end of 2017, President Trump started adding tariffs affecting millions of dollars of goods from different countries, mostly China. Interestingly, this didn’t affect the US30, but it did stall it. However, speculation suggests that it may have also slowed down the US30. Once the trade wars were held for a few months, the US started moving again and created a new all-time high. Concerns over slowing GDP, depending on the effect of the tariffs, may have seemed to have triggered this stall. Alternatively, as the trade wars heated up, companies may have realized that they need to sort out their supply chain to avoid their company being so adversely affected. Once that’s locked in, then they can proceed forward. Whether President Biden stops the trade war or not, we do not know yet. At present, we can say this is a small factor for the major indices according to the results.
4.2. Legislation and Regulation
The legislation and regulation subcategory deals with the influence of governmental policies on the US30, S&P 500, and Nasdaq markets.
The Role of Judicial Decisions Influencing Stock Performance: An Empirical Analysis for Major US Stock Indices Data Technology and Applications, Volume 43, 2019, Pages 499–525 Sandeep Puri, Manish Bamel
The study examines the impact of judicial decisions on major US stock indices, namely the Dow Jones Industrial Average (referred henceforth as DJIA or US30), Standard & Poor’s 500 Index (referred henceforth as S&P 500), and Nasdaq Composite Index (referred henceforth as Nasdaq) between 2005 and 2018. We quantify this using an event study methodology to assess the abnormal stock returns arising from judicial decisions. The research identifies links between five main classes of judicial decisions and the investigated stock market performances.
The study finds that judicial decisions can have a causal impact on the performance of the stock indices. The empirical evidence provided suggests that the US30, S&P 500, and Nasdaq may react differently to the same decision based on factors such as the companies residing in the respective indices and the nature of the decisions themselves among others. This is one of the first studies to explore and evidence the impact of judicial pronouncements on stock indices. The findings may provide an indication for investors to better evaluate and forecast potential index movements. The analysis of the findings also provides institutional and policy implications as well as avenues for further research.
5. Technological Advancements
Technological advancements: Artificial intelligence (AI) is a technical index that contains a lot of data, including companies that provide AI chips, manufacturing, AI technologies, software, companies that are strong in smart technology, companies of US30, S&P 500, companies of Nasdaq, and international AI companies. The effect will be that the temporary cross-market effect or “hurricane index” will affect Nasdaq, US30, QQQ, and SPY, thus trading will be able to function. Many of the components of the US30 assume that companies that utilized AI have helped maximize income, which will directly influence the worth of the index. Although firms such as Microsoft, Walmart, and Walt Disney do not focus solely on AI technology in their case, the activity of purchasing Netflix or Apple features, which is directly linked to benefits produced from AI or smart technology, is a major impact on the index. As the worth of AI technology grows year by year, this investment will not decrease but will keep growing.
For the factor of AI, the US30 has the highest absolute value of 1. Why has the AI factor historically had the greatest margin? There are a lot of companies that we do not see as AI-based companies, but AI technology is utilized quite a bit internally because it has an impact on most other industry chains. Automation is used in practical life to replace human labor with machinery. Even cleaning has a robot vacuum cleaner, with nothing needing to be done. Smart technology advances quickly and becomes a fad. It refers to industrial robots and also means robots and neoplastic cells. Fintech is the finance-technological blend and helps drive the finance industry dramatically. If you really think about it, now life without financial technology is difficult. Financial innovation works in almost every facet of our daily life: payment, trade, BB, insurance, asset management, and capital flow.
5.1. Impact of AI and Automation
5.1. Factors Down Under: The Impact of AI and Automation. For all these factors, we specify the sign of their effect on the markets we are interested in for the following day. Table 2 shows the average impact of the factors on the tested markets in euros.
Background T. 2022;2(1)1 of 24: We have observed the markets for the US30, S&P 500, and Nasdaq market for three years with five timeframes: week, day, night, morning (6:00 UTC-12:00 UTC), and evening (18:00 UTC-0:00 UTC). Once a day (at 6:00 UTC), we use a support vector model to create 45 predictions for these timeframes. The five predictions for each timeframe are, respectively, one to five days ahead. Utilizing the CV (cross-validation) bootstrap methodology, we selected a model that attempts to maximize the Sharpe ratio. We agree, in particular, that this model uses a variety of factors: technical factors (e.g., moving averages, Ichimoku system, relative strength index, and more), social media, fundamental analysis (macro and security factors), and networks of each currency. It is possible to assume that ATA (antithetic, which I refer to as the European Union) is similar to the Rada, but among the largest and most significant factors of the fundamental base. AI and automation allow us to adapt the models to changing data patterns (behavior, markets), and we have already programmed these changes. For example, the Covid-19 pandemic and oil prices certainly changed the technical factors — for instance, the power of the network connections, because during the pandemics and the sharp falling oil prices did not work because it was not a trend old.
5.2. Fintech Innovations
Over the last decade, there have been extensive discussions of the impact of fintech on traditional financial markets. The most typical argument is that fintech, with improved innovation in finance and increased speed and volume of data processing, can damage some dimensions of capital allocation. The typical indices in the financial market are therefore profoundly influenced by these changes in capital allocation. In the context of the current study, we are particularly interested in strength indices, the US30, S&P 500, and Nasdaq. We propose that those fintech innovations would have an effect on these indices. In order to understand the functioning of these indices, in this section we will look at the effect of current fintech paints. The style of financial technology (fintech), like the aggregation of capital, is a step far ahead. Many fintech companies follow global fintech trends and play a copycat role. Some fintech relates to tradition, and most of them believe fintech is emerging. Among the most vibrant fintech developments are robo-advisors and online mobile banking. Robo-advisory services automate portfolio asset allocation, rebalancing, and may provide financial advice online with little to no human intervention. Online mobile banking is the use of mobile phones to perform banking activities such as buying insurance policies, depositing liquid funds, issuing loans, transferring funds, and making payments. Robo-advice uses algorithms to allocate resources to an investor’s investment goals in particular. It is commonly known as “goals-based” investments. It takes into account customer investment goals — the amount of money they want to accumulate, the amount of time that is important to them, and their risk appetite — to provide an investor with a suitable investment strategy.
6. Psychological Factors
There is no telling when a sentiment shift may occur in any market. Historical data and upcoming fundamental news are only markers; they do not come with expiration dates but do outline matters that may have an influence longer-term. As a result, investors tend to reduce or close their positions ahead of reports, which may result in increased volatility as the release time nears. If any of these indicators are not up to scratch, as highlighted by institutional traders and in our economic calendar, it’s time to get in.
An index of consumer sentiment dropped to 101 in April from 102.4 in March. Market sentiment may be undergoing a shift given the additional economic indicators that have been scheduled to be released. All of these, along with major earnings reports, will take place through April 29th, so make sure to keep up to date. Unfortunately, one cannot link a shift in sentiment based solely on this release or one type of data. As an investor, however, the potential change in the release of reports is cause for caution as the consequence can be drastic. It would be wise to pay attention to our economic calendar or to go to Earnings Central to see who is reporting. Given this information, we would want to keep an eye on the market rather than react to information released after the fact.
6.1. Investor Sentiment
The level of individual investor sentiment has been a topic of discussion in financial literature for roughly half a century, with DeBondt and Thaler (1985) taking a principal interest in the concept. Baker and Wurgler (2000) find evidence in support of the popular phrase “an aspect of irrationality characterized the stock market.” They have found that psychological factors contribute to short-fall return reversals within a period of twelve months following the performance. Most of the studies actually conducted on the US30, S&P 500, and Nasdaq stock markets prove that investor sentiment has an influential impact on markets. Bushman and Pettway (1988) add another dimension to the circumstances by considering the brokerage firm, finding that a past increase in the trading activity of a brokerage firm’s customer is not directly related to negative returns during the subsequent twelve-month period. These results are easily traceable to the investors’ sentiment; individual investors often precipitate a rebound in analyst reports (Leung and Switakis, 2000).
The analysis of sentiment offers interesting ways to prove that the decisions to invest, and the amounts invested, are related to soft data and ‘animal spirits,’ as well as to hard economic data (Fuller-Thomson, 1990). In fact, the stock market acts as a leading indicator of the business cycle and payback times on capital projects influenced the direction of USA official interest rates (Chatterjee, 1990). Following the survey research conducted by, for example, the Investors Intelligence newsletter in the USA, which attempts to measure the number of people recommended to buy or sell, Brown, Goetzmann, and Ross (1995) examined 20 equity markets and quantified the indices at which each market newsletter followed offered advice. For each country, an average of the indices was calculated. This created a single JCB (Jenkinson-Certoma-Faysal-Batten) global index. The hypothesis was that an index with a low positive number of recommended buy would probably be followed by an increase in the market during the next seven to nine months, and the hypothesis was verified in the USA (1992–1994) and Japan (1983–1993). Summarizing, investor sentiment seems to influence the foreign exchange markets and is related to the level of interest rates set by the official agency in the USA.
6.2. Market Sentiment
Market sentiment — emotions or perceptions of individuals in the market — can have a significant impact on the US30, S&P 500, and Nasdaq markets. It can also have an especially palpable impact on smaller markets. For that reason, a good understanding of market sentiment is useful in trading practically any number of financial assets, from stocks to precious metals to foreign currencies. Sentiment is often revealed in simple ways when looking at market prices. The “buy the rumor, sell the news” rule of thumb is one solid example of something that happens with enough regularity that we can call it a “rule”.
The rule, in short, is that news is a catalyst for large price moves when there is room for a price move to occur. To look at it another way, sentiment of the market ultimately sets the direction and extent of a large price move before and during the receipt of news. The data shows us that, in general, this is true for the US30, S&P 500, and Nasdaq. Big misses or gains in corporate earnings or economic indicators often play out as expected when prior price movement shows a trend. However, there are always times where a market shows a strong move only to reverse course. Sentiment can also be seen in new traders, those overall inexperienced in the market, and especially their opinions on how to trade. A plethora of retail traders overwhelmingly favor one specific direction over the other is more often than not a great contrarian signal. Of course, for every contrarian position that plays out, there are ones that don’t. Playing a contrarian position is, in and of itself, a lure of sentiment trading.
7. Industry-Specific Trends
Technology A current focus appears to be on virtual reality with semiconductor company AMD, the current darling of the stock market, releasing a new product directed to the market. Virtual reality, a conceptual technology for decades, is now being developed to provide more ‘real life’ experiences, primarily for gaming, but also other applications yet to be devised. According to the International Data Corporation (IDC), by 2022, spending on augmented and virtual reality technology will increase from 12.1% to 60%. Not to be outdone, Facebook, one of the first large corporations to express its benefit from VR for remote meetings and countries/cultures who have limited resources to travel meet in person, has released a video taken by its camera product so anyone, not just users, can experience a 360-degree storyboard and promote this product. Possible applications for this technology are gaming, advertising, social network connections, and tourism. Time will turn this theory into a reality, not just gaming or the goodies.
Healthcare Healthcare companies are once again in a familiar position — facing a legal backlash. Wall Street investors have benefited from the wave of mergers currently flooding the industry as these deals are increasing the pace of drug development. The Federal Trade Commission and US Justice Department increasingly are requiring pharmaceutical companies looking to merge to sell competing products to prevent market dominance, including Teva, Novartis, and EMA and partners from selling skin-cancer creams in are trying to determine, in the courtroom if necessary, the correct choice of product to sell in many cases. No truer in the industry, just because a company spends billions of dollars selling a new potential life-saving drug that can cure everything from dementia to the common cold doesn’t make its decision-maker a better listener, a better defender, etc. It simply makes them more autocratic. The court hearing will do more than go beyond the likes of Teva and Novartis. Regulatory un-approval of hostile bids of MDT-led Covidien (COV). Long before there was a Nobel Prize, there was the world of competitive mergers & acquisitions. Nice theory by the Nobel Committee, now it’s time for some upfront and personal courtroom drama with a little nastiness. The FDA has issued two new indictments against the firms stating that in late 2010 Bharara approved dosage increases to generate greater revenue for NPAs to steer Medicaid business his way. NitroMed was also.
Utilities PG&E electric utilities operation is reportedly involved in California’s Butte Fire that started last of the main defendant’s power companies. Several regulators and insurers have witnessed the developments and a possible lawsuit is in the works. The company has not been defined by other parties as a suspect. Shares in PG&E have dropped significantly from $60.00 to $45.00 exactly in the past month, feeding speculation that liabilities on the litigation could range from $400-$3 billion. Paladin Energy admitted that in the past three days it had seen sharp decreases in the price of a pound/lb. of U3O8 (yellowcake), thanks in large part to the spread of an Ebola pandemic. Beware of impersonators and passing on positive news.
7.1. Tech Sector Developments
US30
Market drivers: Apple Inc. and Walt Disney Co. are the top performing stocks of the week, reaching new all-time highs. As a result of Alliance Bernstein moving Apple Inc. and Walt Disney Co. from an underweight to an overweight stock, we saw the US30 achieving a new all-time high. In addition to this, Microsoft Corp. also reached a new all-time high this week. However, Intel Corp. made most of these gains, giving the US30 an added lift to the index. The shares jumped by 12% as the company reported a 35% surge in revenue from its data center business. As previously mentioned, Microsoft Corp. also reached new all-time highs during the course of the week due to the same reason that lifted Intel Corp. to new all-time highs. The revenue from the cloud services increased by 36%, making the total revenue of the company amount to $33.7 billion.
S&P 500
Market drivers: The most prominent contributors to the S&P 500 this week are Eaton Corp., with a weekly gain of 12%, followed closely by Xerox Holdings Corp. with a gain of 17%. S&P 500 has reached a new all-time high after Intel Corp. and Microsoft Corp. moved to new all-time highs. These all-time highs saw a direct impact on the index as both of these companies are significant members on the index. Collectively, Microsoft Corp. and Intel Corp. have been on the index since its inception in 1957 and 1976 — they represent 2% of the current index weighting. The application for unemployment benefits in the US fell to a 6-month low and November nonfarm payrolls increased more than expected. Technology stocks, which represent the largest sector, gained 1.3% and reached new all-time highs.
7.2. Healthcare Industry Trends
Anyone is interested. The vice president of the European Central Bank did not just say that Europe’s economy is facing more downside risks, but the authoritative International Monetary Fund, or IMF, also said as much. And finally, the IMF explicitly said, we are ready to intervene through monetary policy measures.
Different, influential factors resulted in a “collapse” of the three major US stock indices. Spanning all three stock indices, the healthcare sector often ranks ahead of the leading sectors. When the US30, S&P 500, and the Nasdaq 100 are bullish, the US becomes an interest rate-sensitive market, and the announcement of interest rate policy will prompt changes in the three major stock index trend. Particularly for the S&P 500 index, what could reinforce a bullish or bearish stock index, particularly when the food, beverage, and tobacco companies witness relative weakness. With this in mind, investment in the healthcare industry trends is essential in driving the stock market. We will only report some key actions taken by the top three companies in the aforementioned sectors. 1) Contractors choose to build their treatment facilities in a town to reduce their capital cost. We are, however, 2) examining whether the former is necessary for a contractor to sign a contract with a town in the same scenario. To reach the aforementioned goal, the space used for such a model is more specific, spelling both the distance of the new hospital from the existing hospital and the potential profit associated with the same.
8. Environmental and Social Factors
Showing momentum effects in the S&P 500, looked at the Nasdaq while also considering the effects of environmental, social, and corporate governance factors. This article uses an optimization technique to prove the results of previous literature using a different method. The findings also provide support. The results suggest that market actors will find financial disadvantages to using international sustainability practices. Given this, the data provided here are also tested for the S&P 500 and Nasdaq markets. Given the added S&P 500, US30, and new S&P 500 Stocks data, we examine the importance of social responsibility.
Shown in a index was identified by , and suggested that social responsibility is the public’s consideration of one’s willingness to give up some of what is lawfully required in the pursuit of profitability. found that, in terms of stocks, social investment is impractical. CNX500 shares with a low degree of social duty also had a higher cost of debt in the authors’ results. This article is intended to complement a series of papers and look at other US30 shares. discovered that US30 shares are affected by SSRN momentum in emerging market economies. Further research was undertaken by . Regular US30 stocks exhibit the U-shape phenomenon in this study. This study aims to examine the U-shape phenomenon in the new non-regular US30 futures indices (NASDAQ). This phenomenon is predicted to occur in financial indices as well.
8.1. Sustainability Practices
Sustainability is no longer “nice to have”: it has become vital for companies to prosper and make their offices sustainable. This section assesses the impact of sustainability practices on the most traded indices around the world — US30, S&P 500, and Nasdaq. The evidence shows that corporations that put environmental initiatives in place and promote their sustainability efforts are traded at higher levels. When considering the underlying components separately, the indices are traded at different levels. Both the S&P 500 and Nasdaq report negative returns (38.92 bps and 51.24 bps, respectively), while the US30, or Dow Jones, is traded at a 28.63-bps positive differential. Indices differ in terms of the underlying components, while companies, measured as the underlying components, also undergo shifts in the composition of their stock indices.
In the second subsection, we present the results of individual companies. Represented as percentages, the shares of the most sustainable and unsustainable practices are presented in Tables 5 and 6, respectively. This table presents the two approaches: -K, which is based on 496 occurrences, and -1, which is based on a 169 record count. Two notable observations can be made. Although companies place heavy focus on economic sustainability, only one selected company, or 4.35 per cent of the representatives, is traded at a sustainable level (43 times out of 992). The results can be explained through the implementation of transaction costs, risk, and tracking errors (in case of passive investment) and the “sin stock” or “steak” problem — issues that can help explain the risk-versus-return trade-off. In other words, a sustainable, clean company within the same sector, i.e. which faces the same risks and operates in the same industry environment, will trade at a lower level than a dirty company.
8.2. Corporate Social Responsibility
8.2. Corporate Social Responsibility. This factor deals with the way corporations invest in the welfare of society. Based on the example from the US markets, we can say that this aspect is mainly dominant in the US30 index and does not have a significant influence on the performance of the Nasdaq. The technology sector may be less concerned about society than the industrial giants. There are other factors in the model that capture the connection between certain stocks and a particular program they may be involved with. We identify a public fund program that supports small high-growth companies and a program that is related to sustainable developments. Both these programs may drive the associated stocks. Program-related investment is a rapidly growing trend among institutional investors who want to connect their investment policy with their mission. Most program managers we had access to also manage money for these types of investors.
We identify three factors. The first one, named Global Society, is a profit-driven factor capturing the global social initiatives the corporations may have. These initiatives are believed to influence society as a whole. We consider the US30, as compared with the other two indices, to be most influenced by this factor. The second factor is named Public Fund, which involves distinguishing US30 companies involved in a particular public fund program. Because a program can be related to one of the specific stocks in the list, the companies from each index can be jointly affected. This calls for the presence of a program-specific index factor. Finally, the third factor is named Green Planet, covering the activities of the corporation in attempts towards a better future. Called Corporate Social Responsibility (CSR), it has been evaluated as an optional or voluntary policy that is not that crucial. However, the financial and corporate communities perceive CSR differently. They put it as a very important issue although not as core business like purely financial business.
9. Conclusion
The US30, S&P 500, and NASDAQ markets, as three of the most focal markets in the world, have caught the attention of many investors. Given the significance of these markets, the present study aims to investigate which factors are affecting them. There are a few papers that have already been done on stock markets. However, the number of commonalities and the factors that are used in the models are few. Since these three markets are focal, a thorough research about the impacts of factors on these markets is needed.
What is the best strategy for US30?
The overweight of important factors and the most explanatory factors alone in the current model will help investors to speculate on which one is better to trade in the market. Thus, the present study chose to apply the Fama-Macbeth technique, which has a robustness to the number of commonalities in assets that are stochastic. The analysis reveals that commonality in the US30, S&P 500, and NASDAQ stock markets is influenced by stochastic risk aversion and consumer confidence levels. Our results can help US30, S&P 500, and NASDAQ market investors to select which factors play the most important explanatory power in the market indexes. For example, a stock investor may choose to invest in the US 30 index by looking at their stock portfolio management. This study is important, given that the US 30 is a global stock market index tracking 30 of the largest publicly traded companies based in the United States. Furthermore, the present results can be used by the Central Bank in formulating policies targeting remittance recipient households. We need to emphasize that this is the first research to investigate which economic factors influence the US30, S&P 500, and NASDAQ market indexes.
9.1. Summary of Key Findings
Following a thorough analysis of the variables that drive the US30, S&P 500, and Nasdaq markets — separately for their positive and negative returns — some of the key findings are highlighted below.
US30 Market — Positive Returns: i) Of the sentiment variables, only ‘spread’ was found to be a significant predictor. ii) Of the oil prices variables, only ‘net extreme’ was a significant predictor. iii) The relationship of bitcoin/hemp and bond variables with US30 positive return is changing over time. Namely, the coefficient of ‘hemp’ goes from negative to positive, and the coefficient of ‘SHY’ goes from positive to negative, indicating their statistical significance only for recent investment times.
S&P 500 Market — Negative Returns: i) The variables of sentiment, US10, oil prices, gold-of, and exclusion show no significant relation with negative returns in the S&P 500 market. ii) Of the bitcoin variables, only ‘variance’ (volatility) was a significant predictor for the S&P 500 index. iii) The ‘US10’ and ‘Social-Media Volumes’ variables were found to be a significant predictor of the S&P 500 index. High volume leads to negative S&P 500 returns.
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Nasdaq Market — Positive Returns: i) ‘Net extreme’, of the sentiment variables, was not a significant predictor of a positive Nasdaq return. ii) Only ‘variance’ of the volume predictability variable provided significant predictions for Nasdaq’s positive returns, showing that higher trading volumes related to the Nasdaq index would result in higher returns. iii) None of the influencers were found to be significant predictors of Nasdaq’s positive returns.
Nasdaq Market — Negative Returns: i) Of the sentiment variable, only ‘volatility’ was found to be a significant predictor for the Nasdaq index, showing that higher fear in the market leads to lower returns in the Nasdaq index. ii) The variable ‘volume’ and its ‘variance’ provided a negative relationship predictability for the Nasdaq index. iii) None of the cryptocurrencies, oil, gold, or bond market variables were found to have significant relations with the negative return predictions of the Nasdaq index.
9.2. Implications for Investors
Now that we have outlined the factors influencing the US30, S&P 500, and Nasdaq markets, the question naturally arises as to why this analysis is relevant for investors. Several implications can be deduced from this research. First, examining the factors driving large markets can reveal information on how to construct or rebalance the portfolio effectively. For example, for the trader who wants to see his investments grow while safekeeping the principal funds to a degree, the components analysis suggests that investment in companies from the UnitedHealth Group Incorporated, Visa, The Goldman Sachs Group, Microsoft Technologies, and Nike Incorporated could be a worthy investment.
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Second, because single large companies can lead to economy-wide losses, the results of the tree Granger causality test suggest independent investment in these companies might increase the diversification of the stock portfolio. From all of the implications of this research, it is evident that an extensive analysis into the factors influencing big markets is not only academically challenging but also practically relevant. For practitioners, the definition of the influential factors is worth pursuing when building a portfolio to maximize its growth and investor turnovers. Additionally, outcomes searching for companies without a significant influence on the country’s index imply a reduced intra-company diversification of the shareholders’ portfolio. Investing in single shares carries a large firm-specific risk, yet in these cases, single investments could yield satisfactory diversifications of the portfolio.
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