Why does the S&P500 lead stocks?

Since I have spent the last 3 weeks watching the markets day in and day out I've noticed that the S&P500 leads on all other stocks.

If the S&P500 falls, then the Dow starts to fall and the FTSE and the Dax. If it rises then other stocks start to rise.

Is it a key Market indicator that investors look to when buying and selling across markets? I have yet to see European markets move independently of the S&P500 direction.

because stock markets are really just US trackers

Foxwales said:

Since I have spent the last 3 weeks watching the markets day in and day out I've noticed that the S&P500 leads on all other stocks.

If the S&P500 falls, then the Dow starts to fall and the FTSE and the Dax. If it rises then other stocks start to rise.

Is it a key Market indicator that investors look to when buying and selling across markets? I have yet to see European markets move independently of the S&P500 direction.

Click to expand...

From the CIA Factbook: "Economy - overview:
The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $47,400."

From Wikipedia: "The economy of the United States is the world's largest national economy. Its nominal GDP was estimated to be nearly $14.7 trillion in 2010, approximately a quarter of nominal global GDP. Its GDP at purchasing power parity was also the largest in the world, approximately a fifth of global GDP at purchasing power parity."


A large proportion of stocks which make up leading indices around the world are either multinational companies, subsidiaries of multinational companies or do business with multinational companies. So basically, as someone once said to me, when America sneezes the world catches a cold.

Liquidity, among other reasons...

Well done Foxwales for spotting the S&P is the leading index. And doing this in 3 weeks is good: many traders go through life believing it's the Dow because it gets all the coverage.

PS: The S&P is an index, like the Dow etc., calculated from the prices of constituent stocks. It's not a stock. The S&P's TA may suggest probable future price action of other indices plus both constituent stocks and non-constituent stocks from the same sectors. But it follows that if the S&P is going up, at least some of its 500 constituents have already risen. As not all 500 participate to the same degree in any move, it also follows that the S&P's movements can never be as extreme in % terms as the most active constituent stock's.