The main function of global stock indexes is to track the performance of stocks. In order to do this, an index must be constructed using a representative sample of the stock market. Typically, the index comprises more than 14,000 stocks and is calculated using a rules-based methodology across all countries.
Global equity indices cover all global equity markets, and are widely used benchmarks. Many of them are backed by simplified, cheaper commercials. They are also based on The Refinitiv Business Classification, which is the industry’s most comprehensive classification system. Global equity indexes cover more than 95% of a market’s investable market capitalization. This makes them an ideal base for benchmarking and analysis. Furthermore, they are flexible enough to be used to create custom index strategies.
As investors looked forward to economic reports and corporate earnings, European stock indexes ended the day lower. Meanwhile, the major stock indexes in Hong Kong, Paris, and Tokyo plunged nearly three percent. This was almost equal to the decline in US stocks. The market has been roiled by recent political developments and the ensuing uncertainty.
While the global economy is recovering, the global economy is not fully recovered. The financial crisis led to a full-blown recession in 2008 and a resulting fall in business and consumer spending. As a result, equity markets in resource-rich countries fell more than 40%, erasing their gains from the last five years. Only one major stock market ended the year in positive territory, the Shanghai Composite Index.
Global stock indexes are calculated using a method approved by an index committee. The basic principles of index construction are weighted average mathematics. Initially, many indices were price-weighted, but they have since moved to market-cap-weighted indices. Modern indices are also free-float weighted, excluding promoter holdings.
When global stock markets became unstable following the outbreak of COVID-19, investors started avoiding risky assets. This negatively affected the performance of global stock markets. This happened as a result of investor awareness of the long-term consequences. Investors remained away from stocks in countries where the pandemic had already hit. Despite the negative impact on stock markets, news about an imminent COVID vaccine raised hopes. Many forecasters predicted that the vaccine would be ready by the first quarter of 2021.
Trading indices involves following technical analysis patterns and fundamental factors. This is similar to the process of trading other forex assets. However, one important aspect of successful trading with indices is to keep in mind the timing and day-to-day trading hours of stock exchanges. Since stock indexes are responsive to the news environment, traders should avoid trading half an hour before the opening or half an hour before the closing of the market. It is also important to close any positions before the close of the day.
Recession fears weighed on global stock indexes during the second half of the year. Metals and Treasury yields also suffered as investors were worried about the potential of lower consumer prices. Meanwhile, U.S. Treasury yields fell as the Fed’s monetary policy is expected to slow. The 10-year Treasury yield fell 17.9 basis points to 2.795% and the two-year yield dropped by 19.4 basis points to 2.733%. The markets also price in a 90 percent chance of a rate cut next week.