The S&P 500 hit 3000 for the first time ever on July 10. And while it was a temporary boost of just a few hours, it was a big moment for watchers of this index. The moment was good news for investors, but not for the reason you might think.
The S&P 500 spike came at the same time as people were digesting U.S. Federal Reserve chair Jerome Powell’s Congressional testimony, in which he indicated that the FR would cut interest rates soon in the U.S. — perhaps even this month. It’s a more conservative approach than the FR has taken recently, after raising the U.S. federal funds rate nine times over three years. And plenty of people are worried that a recession is on the way — one that will have global consequences.
So why did traders hop on this particular index? Ian Salisbury writes for Money: “Stock market investors like low interest rates because they make it cheaper for U.S. companies to borrow, boosting business prospects.”
Cool for traders. But what about you, at-home investor?
Wait, what’s the S&P 500 again?
The Standard & Poor’s 500 index measures the value of the 500 largest corporations listed on the New York Stock Exchange. It’s a way to take a quick look at the health of the stock market and the overall economy in America, Investopedia explains. If you're heavily invested in the trading market, you might even have some shares in it yourself.
It’s good for glancing at the market because it has 500 companies from all areas of the U.S. and across industries. But the S&P 500 isn’t perfect. It’s weighted toward larger-cap companies, or those with the market capitalisation of more than $US10 ($14) billion (think Microsoft, Apple, Exxon Mobil, Johnson & Johnson).
Don’t change your investing strategy
Don’t freak out about this new milestone (which won’t even be official until the market closes with the S&P 500 at 3000). Instead, if you’re keen on investing in a diverse set of stocks this way, make sure you’re not paying too much in fees. When we mention “low fee” index funds, we’re usually talking about those with an expense ratio 0.25 per cent or less.
Remember that it’s how long your money spends in investments that makes the greatest difference for your long-term outcome, not how you react to market swings. While you should be rebalancing your portfolio annually, any changes you make when you do so should be based on your own risk tolerance, not whatever highs and lows you’ve seen the market endure recently.