The movements of the S&P 500 average and general stock prices are often closely linked. When the S&P 500 falls, so do most stocks, and vice versa. This relationship is typically due to investors’ perceptions of risk. When the market is down, investors tend to sell all their stocks, regardless of individual company performance. However, there are also times when the S&P 500 and general stock prices move in opposite directions. This can happen when investors believe that a particular stock is undervalued or when there is news about a company that affects only that stock.
The close relationship between the S&P 500 and general stock prices means that any changes in the average will have a broad impact on the market.
Examples of S&P Average and Stock Price
For example, if the S&P 500 falls by 1{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}, it’s likely that most stocks will also fall by about 1{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}. However, there will always be some stocks that outperform or underperform the market. It’s important to remember that the S&P 500 is just an average and doesn’t represent the performance of any individual stock.
When the S&P 500 falls, it’s often because investors are worried about the economy. If there is good news about the economy, such as strong job growth or rising consumer confidence, the S&P 500 will usually rise. On the other hand, if there is bad news about the economy, such as a recession or rising inflation, the S&P 500 will usually fall.
The S&P 500 is often used as a barometer for the stock market as a whole. If the index is falling, it’s a sign that investors are worried about the economy and are selling stocks. If the index is rising, it’s a sign that investors are confident about the economy and are buying stocks.
While the S&P 500 is a good indicator of the stock market’s general direction, it’s important to remember that it doesn’t represent the performance of any individual stock. When making investment decisions, it’s always important to do your own research and not rely too heavily on any one indicator.
Correlation Between Major Stock Indexes & General Prices
U.S. stocks, as measured by the S&P 500 index, had their best day in two weeks in the latest stock market news on Thursday as jobless claims unexpectedly fell and trade tensions cooled. The S&P 500 rose 1.1{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}, led by gains in chipmakers and banks.
The Dow Jones Industrial Average closed up 261 points, or 1{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}, at 25,406, led by a 3{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} surge in Boeing shares. The 30-stock index also got a boost from American Express, Caterpillar and Goldman Sachs, which rose more than 2{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} each.
The Nasdaq Composite advanced 1.6{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} to 7,491 as chip stocks rallied. Micron Technology jumped 5{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}, while Nvidia and Intel gained more than 3{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} each.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 17 for the first time since late January.
Stocks have rallied in recent days as fears of a trade war have subsided and investors bet on a strong earnings season. Thursday’s drop in jobless claims added to the recent string of positive economic data.
“The market is continuing its digestion of very good news on the trade front and good news on the earnings front,” said Art Hogan, chief market strategist at B. Riley FBR. “All of that is leading to a higher stock market.”
Hogan also noted Thursday’s drop in jobless claims, which fell to 202,000 last week, below the 210,000 that economists polled by Reuters expected.
“This is more evidence the labor market is very tight,” Hogan said. “Wage inflation could be just around the corner.”
The S&P 500 and Dow are both up more than 4{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} this year, while the Nasdaq has gained nearly 7{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}.
Stock market investors will be closely watching the latest developments on trade as the Biden administration prepares to impose tariffs on $200 billion of Russian goods. The tariffs are set to go into effect on Sept. 24, unless the two countries can reach a deal.
U.S. Trade Representative Robert Lighthizer said Thursday that there are currently no plans for another round of trade talks with China.
“We’re getting close to the point where we’ll have to move on without them,” Lighthizer said in an interview with CNBC’s “Squawk Box.”
The Trump administration has already imposed tariffs on $50 billion of Chinese goods, and Lighthizer said those tariffs will “remain in place.”
The S&P 500 and Dow are both down about 2{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} from their all-time highs set in early September, while the Nasdaq is off 3{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} from its record.
Investors will also be keeping an eye on earnings as more companies report over the next few weeks.
So far, 78{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} of the S&P 500 companies that have reported have topped earnings estimates, according to Refinitiv. Analysts expect earnings growth of 24{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} in the third quarter.
“The market is looking for confirmation that the economic recovery is on track and that corporate profits can continue to grow at a double-digit pace,” said Sam Stovall, chief investment strategist at CFRA Research.
Stovall said he is bullish on the market for the rest of the year and expects the S&P 500 to hit 3,100 by the end of December.
“The ingredients are there for a Santa Claus rally,” Stovall said. “I think the market is going to continue to go higher.”
The S&P 500 is up about 16{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} this year, while the Dow is up more than 18{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775}. The Nasdaq has gained nearly 27{65be9334acc1956166e0e04a6db9af59fc7f7235542b4abbd0aeda07cf407775} in 2020.
