S&P 500 Index
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Wall Street walked nearly four-fifths of its highway from April dips below 5,000 on temporary price adjustment to a retest of all-time highs at 5,275 points, in terms of the S&P 500 broad barometer. The market climbed on flagship earnings fuel, partially flavoured by the Federal Reserve speakers' agenda. Touching the round figure of 5,200 milestone on May 7 to follow a rhetorical figure of speech by Richmond Fed chair Thomas Barkin who mentioned that the current monetary policy (of higher for longer interest rates) "was restrictive enough" to be able to bring inflation down to the central bankers' 2% annual target. He also noted that he was ready to track developments in the US labour market, as a "marked" turn to its weakness could also justify a rate cut this year, even though "multiple positive inflation readings" suggesting that the disinflation process is on track are needed. 175,000 of non-farm payrolls, against 238,000 in expectations and 315,000 a month ago, is probably that kind of weaker ground, which allowed him to make such conclusions. Good dovish arguments for reducing borrowing costs, at last, this autumn.
US Treasury bond yields went some lower, in hopes for a rate cut and to give way to another stock boom. Recently, the Fed frontman Jerome Powell merely contended to comments that the next rate move isn't likely to be a hike. The head of New York Fed, John Williams, said this Monday that monetary conditions "were adequate to bring down inflation". Because of Fed speakers' activity, the crowd is betting on a 65% probability of a rate cut before or during the Fed's September meeting with only a 21% chance for keeping the Fed's Fund Rate at 5.25%-5.50% unchanged before the November 7, 2024 meeting of the regulator. Based on these considerations, I would expect the market bulls have no reasons to stop climbing until a new record would be hit within a 5,350-5,500 area in summertime. The competitive environment encourages investors to choose a share in businesses, rather than money at a lower percentage interest.
S&P 500 Index
As it is the most commonly used stock index it has some unique features a trader should keep in mind:
- The index represents the broad stock market performance since it lists companies from various sectors. It is not focused on specific industries or segments like the Dow Jones index family and the Nasdaq index. So, it is often called a “barometer of American economy;
- There are different sectors inside the index, which represent companies from familiar and particular sectors. According to numbers released on May 31, 2023 the smallest sector by market cap is Materials with a share of 2.4% (all numbers are given as of May 31, 2023), while the largest is Information technology with 28% of the index market cap. The index also lists companies from healthcare, financials, consumer discretionary, communication services, industrials, consumer staples, energy, utilities, and real estate. A sector breakdown allows investors to distinguish the best performing sectors and select the best performing stocks inside the sector. It also allows for the evaluation of economic performance of the United States in General and for a look at what is driving the American economy;
- The index is very sensitive to macroeconomic data, and positively reacts to rising GDP, retail sales, investments, and the phase in which houses are being built. Any negative news in these areas may push the index down. Macroeconomic data may have a sustainable effect on the index as declining GDP will put sustainable pressure on it, and vice versa;
- The index is very sensitive to the monetary policy decisions of the Federal Reserve (Fed). Rising interest rates and increasing borrowing costs result in less money in the economy and this leads to lower corporate margins, lower consumer and investment demand, and eventually to lower investments in stocks. So, the Fed’s hawkish stance usually results in a weaker S&P 500 index. A dovish monetary policy by the Fed usually supports the index. Thus, the Fed’s interest rate actions, testimonies of its head and FOMC voting members should be monitored;
- The Consumer Price Index (PCI) and the Personal Consumption Expenditures Price Index (PCE) data, which represent inflation, affect the index. If the numbers are far from the Fed’s target, which is set at 2%, it may signal to the possibility that the Fed may continue with its hawkish stance, meaning pressure on the S&P 500 index. Any increase of inflation means the pressure will rise. If inflation slows down to below the 2% target, it is likely to push the index up;
- The S&P 500 index is a risky asset as it represents the sentiment in the market, and the appetite for risk. A rising appetite for risk supports the index, while uncertainty, which lowers economy and geopolitical risks, put pressure on it;
- The index has a negative correlation with the USD/JPY as the Japanese Yen is regularly used for carry trading. So, a deteriorating Yen may signal to a decline of the index;
- The S&P 500 is a very popular asset for investments. An individual may invest in S&P futures, CFD’s of ETF’s that are linked to the index. This is a very diversified asset, and is suitable for conservative investors as it has lower volatility than any of its components, or even currencies or commodities. Thus, the index may serve as a hedge asset inside an investment portfolio;
- The index is linked to the U.S. stock market’s opening hours, but futures and CFD trading on the index continues mostly throughout 24/5, excluding weekends. So, the index may open with a gap if something very important has happened during a weekend.
Ticker | US500 |
Contract value | 10 USD x US500 Index |
Maximum leverage | 1:100 |
Date | Short Swap (%) | Long Swap (%) | No data |
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Minimum transaction volume | 0.01 lot |
Maximum transaction volume | 100 lots |
Hedging margin | 50% |
USD Exposure | Max Leverage Applied | Floating Margin |
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