How do global investors use the S&P 500 to better understand the performance and potential opportunity set in U.S. equity markets? S&P DJI’s Tim Edwards joins GCMA’s Michael Grifferty for a closer look at the role of the S&P 500 ecosystem in the global economy and how market participants are using the index icon to make more informed decisions.
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Surveying U.S. Markets: Sectors, Geopolitics and Index-Based Strategies
Michael Grifferty:
Welcome to our session on Surveying U.S. Markets: Sectors, Geopolitics and Index-Based Strategies. This is Michael Grifferty from The Gulf Capital Market Association. We're thrilled to have with us Tim Edwards, Ph.D. To start, could you take us through an overview of the current U.S. market landscape?
Tim Edwards:
Yeah, absolutely. Look, the important thing to bear in mind about the U.S., first of all, is that we are speaking today after an extended period of extraordinary performance from the U.S. equity markets. That extraordinary performance has benefited many investors. It's meant that the U.S. equity markets overall have come to play an increasingly important role in investors' portfolios, but the world has been changing. We've seen a bit more volatility and in particular we've seen different parts of the equity market struggle to take leadership. So, where we are today, we've had very strong performance that's led to some pretty stretch valuations that may well continue or those valuations may be well justified by future earnings, but we are starting to see different parts of the market competing for leadership.
Michael Grifferty:
How have geopolitical events, including elections, policy changes, helped shape market dynamics, historically and how have they influenced development and application of index-based strategies globally?
Tim Edwards:
Well, at S&P Dow Jones Indices we have the benefit of an extraordinarily long history, rich data to analyze, and I'll share with you two observations. The first is that if you look over the very long term, which party holds the presidency, the Senate, Congress, on average, doesn't seem to make an enormous amount of difference to the overall market.
However, policy, political whims do impact different industries and sectors very differently. For those who are more of an active market participation, or an active frame of mind, that means potentially looking at different sectors and industries to benefit, from what you see or perceive to be the future path. For other investors, it actually emphasizes the potential benefit of diversification. If you're not sure which part of the market will do best or worst, a diversified approach can ensure participation in the future leaders.
Michael Grifferty:
Could you discuss why and how the S&P 500 matters and why global investors use it to access the U.S. market?
Tim Edwards:
The S&P 500 is one of the world's most famous benchmarks, and it is a shorthand for how, the U.S. stock market is doing. You know, how did Wall Street do yesterday? Well, how did the S&P 500 perform? So it's useful as a piece of data, but from an investment perspective, what we've seen over the decades is, first of all, it's a benchmark that's quite hard to beat. It's diversified, it represents the whole market, and the U.S. equity market is a very well-developed market full of very smart people. It's hard to beat and the data shows that over the long term, very few strategies do actually manage to keep up with the benchmark.
The conclusion that some people have drawn is that therefore an index-based approach may be suitable as a long-term investment strategy. More importantly, or perhaps for some more importantly, the S&P 500 underlies an ecosystem of products that include funds, ETFs, futures, options, and trading in those associated vehicles, which happens almost 24 hours a day, in many markets around the world, enables investors to get in, get out, when they want to, and I think, in times of uncertainty, in times of volatility, one of the things that's super important to many investors is the ability to access liquidity, and the S&P 500 is because of this broad ecosystem, supports investors around the world to make decisions quickly and to execute efficiently.
Michael Grifferty:
Very insightful, thank you very much for joining us, Tim.
Tim Edwards:
Thank you.
