2024-01-19 22:02:00
The SP500 index rose by 23% in the last year and corrected the declines of 2022. The average return in the last decade exceeds 10% when the index broke away from its multi-year average of about 7%. Now, the S&P continues to rise and reaches an all-time high. On Wall Street, they named the index a target of 5,400 points by the end of the year, will it be able to reach it?
The index, which gathers the 500 stocks with the largest value, has benefited from increases, among other things, as a result of the increases in the technology giants, which continue to deliver impressive performances. Boffenheimer recently said that they expect the Magnificent Seven to increase this year by an average of 12.5% after a minor change in the past two years (a decrease in 2022 versus an increase in 2023). The investment house also said that 70% of the bullish cycles in the past lasted over two years. And that 13 of the 14 bullish cycles continued even after breaking a new record in the S&P500 index, when 1948 was the last US presidential election year in which the American stock market presented a negative return.
In 2023, the S&P 500 index rose by 25%, with 8 out of 11 (73%) S&P sectors closing on a positive trend. Technology shares recorded gains of 57% that year, compared to performance and service company shares that recorded a disappointing year with average declines of 10%.
A factor that can encourage increases in the index is the interest received from bonds for long periods of time, such as the 10-year bond, which until two months ago knew how to give an interest rate of 5%, and today it is already in the 4% region. As the interest rates on the bonds continue to fall , the solid investment instrument will become less attractive to investors and they will look to return to riskier assets such as stocks. In addition, the amount of money in deposits in the US stands at a record of 8-9 trillion dollars, to the extent that this money moves from deposits to corporate bonds and stocks it is expected to help push the major indexes and help the S&P500 index continue to break records.
the risks
The main risks in 2024 are currently macro and interest risks. Investors are still trying to figure out when interest rates will drop and by how much, when just a few weeks ago the consensus was that the first rate cut would be in March. However, following the latest economic data, the probability of an interest rate cut dropped to only 46% from more than 80% previously.
In addition, there is still great uncertainty regarding the geopolitical situation with the Israel-Hamas war, which feels capable of turning into an Israel-Lebanon war at any moment and of course the Russia-Ukraine war which seems to be far from over. It seems that more and more arenas are waiting to open when recently Pakistan attacked Iran. The situation in the world and the wars that threaten to open or expand may greatly affect the profits of the companies and from there affect the performance of the index.
The most important measure
The S&P is undoubtedly the most important index in the global stock market. It constitutes the benchmark (ie the reference point for comparison) of investing in stocks. How central is it to the investment world? The three largest ETFs in the world in terms of assets – SPY, IVV and VOO follow it. These three ETFs currently manage more than a trillion dollars. Two of the five largest hedge funds in the world also follow this index with assets under management of more than a trillion dollars. In total, there are more than $10 trillion in assets that track the index. There is no doubt that this is the most dominant investment tool in the entire investment world. So what is so special about this index that has become so central?
In general, it can be said that this is the most representative and comprehensive index of the American economy – the largest and most important economy in the world. In addition, the index also includes the largest and most important international companies in the world (provided they are also listed for trading in the United States), therefore it reflects to some extent the global economy and not just the United States economy. It is also very diverse, in contrast to the Nasdaq index, for example, which is much more concentrated in technology stocks. You can find the leading technology stocks such as Apple, Microsoft or Nvidia alongside stocks from the pharmaceutical industry such as Johnson & Johnson or Mark. The stocks of the major banks In the world, heavy industrial companies such as 3M, tobacco companies, energy, etc./ As mentioned, all the most important companies in the world are included in this index. This is one of the reasons why it is so loved by investors who are looking for a simple and cheap solution for exposure to the most important stock markets.
A bit of history
The full name of the index is Standard & Poor’s 500 Index. The index has been operating in its current form more or less since 1957, although it has existed in one form or another since the 1920s. As the name suggests, it consists of 500 companies (and 503 stocks, since three companies have two series of stocks), which are considered the largest and most important traded in the United States. The shares are weighted in the index according to market size, meaning that larger shares have a higher weight. The shares that make up the index are determined by a committee, which means that there is also room for the subjective judgment of the committee members, unlike in other indices where the rules are automatic and strict and precise.
Nevertheless, there are some guidelines that guide the members of the committee. We will mention the main ones: the first and most important criterion is the size of the free stock market (that is, shares that can be traded on the stock exchange, and not blocked shares). In addition, the committee checks the liquidity, that is, the ratio between the trading volume of the stock and its market value at an annual rate. The third criterion is the average trading volume in the stock which must be above a certain minimum. There are several other technical requirements such as registration for trading in the United States, registration on certain stock exchanges (New York or Nasdaq), etc. The shares included in the index are updated once a quarter.
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Thank you very much
Anonymous 19/01/2024 22:40
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Only Snoopy on Sunday cell jumps!!
The cell has room for an easy 7-10 percent repair. 19/01/2024 22:34
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The cell has room for an easy 7-10 percent repair.
closed
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