Understanding the US Stock Market: Key Facts for Investors

US Markets have been a popular choice of investors seeking global portfolio diversification opportunities. The fact that it is home to some of the biggest brands in the world, the strong position of dollar and the low correlation between US and Indian Indices make it a top destination. Now I am sure you have done your research on the more serious aspects of investing abroad, and so here is a light read on the most interesting facts about the US Stock Market. Hope it piques your interest! 

1. The United States Makes Around 55% of the World Stock Market

The world stock market is HUGE. With 60 stock exchanges and billions of shares being traded every day, there are endless possibilities for a global investor. Of these, the US stock market is the biggest making up around 55% of the global market capitalization (as of January 2020). Here is a quick look at the top five countries with the largest stock markets 

1. US – 54.5%
2. Japan – 7.7%
3. UK – 5.1%
4. China – 4%
5. France – 3.2%

India contributes to around 3% of the global market capitalization.

2. The US Gave the World the Bear and Bull Analogy in Stock Markets

This is an interesting piece of trivia. We often hear the terms ‘bull’ and ‘bear’ associated with the stock markets. Have you ever wondered what the bull or bear have to do with stocks?

In the market, a bull phase indicates an upward trend while a bear phase indicates a downward trend. Let’s look at the possible origin of this phrase. 

If you have ever watched an attacking bear or bull, you will notice that while bull attacks in the upward direction or tries to throw its opponent in the air, a bear attacks in the downward direction and tries to knock-out its opponent to the ground. 

3. S&P 500 Index Doesn’t Have 500 Stocks

As the name suggests, the Standard and Poor’s 500 (S&P 500) Index must have 500 stocks, right? Wrong! It is an index that comprises 505 stocks. Interestingly, the index has 500 companies, but some companies have issued multiple share classes increasing the number of stocks in the S&P 500. This is an important unknown fact about the US stock market.

4. The Costliest Share in the World Belongs to a US Company

Since the demand and supply of shares invariably determine their market price, have you ever wondered which company owns the costliest share in the world? 

The answer is – Berkshire Hathaway (BRK A)

Most investors are already aware of the name Warren Buffett – the investment wizard from the US. Few of us also know that Warren Buffett is the founder of the multinational conglomerate holding company – Berkshire Hathaway. As of August 22, 2020, the share is selling at $311,126 per share. These are the Class A shares issued by the company. There are class B shares available at a much cheaper price too.

5. NYSE is the Largest Stock Exchange in the World by Market Capitalization

The New York Stock Exchange (NYSE) is the largest stock exchange in the world based on market capitalization. In April 2020, the NYSE had a market capitalization of $25 trillion, which was nearly one-third of the global market capitalization across all exchanges. In comparison, the Bombay Stock Exchange (BSE) had a market capitalization of just over $2 trillion.

6. Number of Stock Exchanges in the US

Currently, there are 13 stock exchanges in the US. Of these, the Intercontinental Exchange Inc NYSE, Nasdaq Inc., and CBOE Global Markets run 12 exchanges and the IEX Group runs the only independent exchange in the country. These are:

1. NASDAQ Global Select
2. New York Stock Exchange
3. NYSE Arca
4. CBOE EDGX Exchange
5. CBOE BATS BZX
6. IEX
7. CBOE BATS BYX
8. CBOE EDGA Exchange
9. NYSE National
10. NASDAQ OMX BX
11. NASDAQ OMX PSX
12. NYSE Chicago
13. NYSE American

7. The US Securities and Exchange Commission

The US Federal Government established the Securities and Exchange Commission or SEC to enforce the federal security laws, propose new rules, and regulate the country’s security transactions. The SEC has a simple three-part mission – protecting investors, maintaining order, and facilitating the formation of capital.

If you are planning to invest in the US markets in 2020, then you might want to keep these factors in mind before investing :

While the government is relaxing the lockdown norms in the US, it will be important to see what people are allowed to do and what they are willing to do. These activity and mobility measures will help you identify clues that point towards the recovery of the economy and the markets.

• Before believing the inspiring numbers on media like a ‘25 percent recovery’, or the ‘highest recovery since March’, it is important to analyze the markets yourself. Statistics can be misleading if you don’t understand the base used for comparison. 
• The US has the highest number of confirmed coronavirus cases in the world. Hence, it is important to keep a close eye on the government’s response to the pandemic. Also, keep a tab on the response of the state governments where the majority of companies are located.
• While the federal government has declared several fiscal packages to help the economy, keep an eye open for any additional financial assistance packages as they might speed up/ slow down the recovery process and impact the performance of the market in the near-term too.
• With the elections scheduled for November 2020, you must expect the markets to be volatile around that time. 

Summing Up

Before investing in a new country, it is important to understand how the local investors think and these facts can help you get a better understanding of an average US investor. Ensure that you spend some time understanding the market, economy, and the companies before investing.