While inflation fears remain prevalent across the US and the UK (it could ultimately peak at 5% in the UK in the wake of coronavirus-inspired quantitative easing measures), the stock market has remained relatively robust across the globe.
This was borne out by the performance of the blue-chip S&P 500 last week, with the index closing at a 39-year high on Friday. More specifically, the S&P 500 rose by 0.95% to 4,712.02 during this time, while the indices stock average sits around 0.7% from its all-time high.
However, there remain numerous factors that move an index’s prices, and we’ve outlined a few of the most prominent below.
- Economic News
Let’s start with the basics; with breaking economic news having a direct (albeit variable) impact on selected industries and even individual stocks across the globe.
This includes everything from policy decisions pertaining to a particular industry and individual company news to reports on investor sentiment and central bank announcement, which may impact on both forex and indices trading in a similar manner.
Similarly, payroll reports may also have a direct impact on stock market indexes and become a significant driver for underlying volatility, causing the indices price to move and potentially creating an opportunity for speculators to leverage this to their advantage.
- Company Financial Results and Announcements
We’ve already touched on company-related news, which can also take various forms and include both scheduled and unscheduled releases.
For example, company announcements may follow significant achievements or proposed mergers and acquisitions (which could drive prices up), while changes of leadership or negative news stories pertaining to influential equities may create an adverse and sudden price shift.
Scheduled news releases may include company financial results, which detail quarterly profits and losses that have a direct impact on business share prices.
As a result, index prices are affected indirectly, as is the indices underlying market capitalisation value.
- Commodity Prices
Interestingly, it has been known for there to be a stark correlation between certain commodity prices and the value of shares and indices.
This varies from one index to another, of course, so let’s take a look at the iconic FTSE100 to provide a little more context. More specifically, some 15% of shares listed on the FTSE100 are classed as “commodity stocks”, which means that any fluctuations in the price of the underlying instrument could affect the index’s price.
So, you may want to consider tracking commodity prices or incorporating such instruments into your portfolio, as a way of reducing the risk of exposure and informing your stock index investment decisions.
- Changes to an Index’s Composition
Changes to an index’s competition may also impact on prices and valuations, with weighted indices likely to see their prices shift when companies are either added or removed.
Not all indexes are composed or weighted in the same way earlier, and traders tend to adjust their positions to account for different compositions or subsequent changes over time.