Features of trading the S&P 500 index
1. The dynamics of the S&P 500 index depends on several factors. In the first place is the situation in the US economy, their domestic and foreign economic policy. The country's economy grew steadily until the coronavirus pandemic in 2020, and the national currency, the US dollar, is included in the IMF's reserve currency basket. The S&P 500 index began its history in 1957 and showed unceasing growth until the end of 2021.
The S&P 500 rose especially sharply after the election of new US President Donald Trump on November 8, 2016, gaining about 10% by the end of February 2017, where it was trading at that time near the 2370.0 mark.
Even after the first wave of the coronavirus pandemic and the collapse in February and March 2020, US stock indices still rose, returning to a multi-year bullish trend. At the same time, in August 2020, the S&P 500 index updated its previous absolute maximum near the mark of 3397.0, reached in February before the collapse due to the coronavirus pandemic, and in early September 2020, the S&P 500 set a new historical record, having risen to the mark of 3588.0.
2. The monetary regulator of the US economic development is the Federal Reserve System, which acts as a central bank. Typically, tightening monetary policy has a negative impact on stock markets, raising the cost of borrowing and strengthening the national currency.
Until January 2022, the Fed, in a situation of slow economic recovery after the coronavirus pandemic, pursued an ultra-loose monetary policy, injecting billions of cheap liquidity into the financial system, and keeping interest rates near zero.
As Vice Chairman of the US Federal Reserve Richard Clarida stated at the beginning of September 2020, the regulator's management is discussing the idea of buying an unlimited number of government bonds to limit the growth of their yield. At the end of August 2020, the head of the Fed, Jerome Powell, during the economic forum in Jackson Hole, said that the leadership of the American central bank would abandon the practice of proactively raising interest rates to curb inflation and would not prevent the annual inflation target, which is 2.0%, from being exceeded. The Fed has kept interest rates low instead of raising them ahead of time to curb inflation, as has been the case in the past. This policy contributed to the weakening of the dollar and the growth of the US stock market.
Since February 2016, U.S. stock indices, including the S&P 500 index, began a period of almost non-stop growth, but they are declining in 2022, correcting deeply to the support levels that separate the long-term bull market from the bear market. The fall in US stock indices almost coincides with the beginning of the Fed's tightening monetary policy cycle. Thus, from the level of 0.25%, the key interest rate of the Fed was raised to the level of 0.50% in March 2022 and already to 1.75% in June 2022.
If the fall in stock indices continues, then the long-term bullish trend of the American stock market will come to an end, also indicating not only the excessive rigidity of the Fed's monetary policy, but also the beginning of the American economy's descent into a period of stagnation, and possibly stagflation. Although, according to the recent statements of Fed Chair Powell, "the US economy is strong" and able to withstand further tightening of the central bank's monetary policy.
3. The surge in trading volatility on the S&P 500 index falls on the period of publication, first of all, of important macroeconomic indicators for the US, as well as the Fed's rate decisions and speeches by the head of the Fed with comments on monetary policy in the US. In second place is the publication of important macroeconomic indicators for the Eurozone, China, Japan, and other countries of the world with the largest economies, the decisions of the central banks of these countries on the interest rate, as well as important political events in the United States and in the world. The following macroeconomic factors and indicators give the greatest volatility to the S&P 500 index:
Strong macroeconomic indicators in the US lead, as a rule, to an increase in the S&P500 index, and vice versa.
4. Intraday volatility of the S&P 500 (CFD) fluctuates over time. On average, it is 70–80 points (the current S&P 500 CFD quote for July 2022 is 3800.0), but it can exceed 150 points during the publication of important news of a political or economic nature in the US and the world.
5. The S&P 500 index has a noticeable correlation with other US stock indices, primarily with the main ones—NASDAQ Composite, NASDAQ-100, and DJIA.
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