The S&P 500 is a renowned benchmark for large-cap U.S. equities and is widely referenced as the gauge of U.S. equity performance. But what is the relevance of the U.S. market and the S&P 500 internationally?
- When we talk about the U.S. market, just how big is it?
Jodie: The S&P 500 is the proxy for the U.S. market, and it represents about 80%-85% of the U.S. stock market. But from a global perspective, the U.S. is over one-half of the global stock market, as measured by the S&P Global BMI. This really matters because as the U.S. economy grows, it propels the stock markets of all other countries—and the U.S. stock market is largely driven by consumer spending. So really, the more a exports to the U.S., the more sensitive it becomes to U.S. growth. For example, a country like Korea has a high sensitivity and on average, rises nearly 9.5% for every 1% Head of U.S. Equities of U.S. growth, whereas the UK only grows about 2.5%. So you can see the differences S&P Dow Jones Indices in impact per country.
- In light of the importance of the U.S. market—proxied by the S&P 500—what’s the ecosystem around the S&P 500 itself?
Tim: That’s one of the important differentiating factors of the S&P 500. In most markets, S&P 500-based products will be among the most liquid, most traded, and most invested among all the other alternatives.
Part of that is because it’s not just about the benchmark itself, rather it’s about the availability of the different aspects that are available in a tradable format. We can mention futures, options, and the VIX®—if you were to pick one macro indicator that the rest of the world watches to gauge not just the U.S. but the global economic health, it would probably be the VIX, which is based on S&P 500 options. Then we have S&P 500 sectors, and smart beta or factors, such as momentum. An ecosystem has grown around the different investment aspects, pieces, segments, and characteristics of over the many years since it was first launched in 1957. There’s a phenomenal wealth of not just data but also products that are internationally relevant.