Why Trade the S&P500 Instead of International Markets?

The S&P500 follows the fundamental principle of investing in businesses: to make an acceptable profit.

Earnings, through the Price to Earnings ratio, are a consistent force behind S&P500 price trends.

The S&P500 represents the biggest (and most profitable) public companies in the USA. Only the cream of the crop make it into the S&P500 index.

The US stock market is the biggest in the world and leads the direction of others.

A key feature of the US stock market is pro-business government policy, which differs markedly from many of the countries below.

Most other international markets show varying degrees of poorer long-term performance compared to the S&P500.

International markets can be broadly categorised as:

• Well established, with strong regulatory controls. Unfortunately, most also have varying levels of socialist, anti-business-profit government policies that impact business profitability.
• Developing markets, with less rigorous regulatory controls. A major component is speculative price action and volatility.

International Established Markets

Most of these well-established stock markets and economies have gradually imposed policies that impact business profits. These countries impose some or all of the following anti-business-profit policies:

• Employee wage increases with minimum wages
• High employee on-costs, such as health insurance, pension contributions, DEI/CSR policies, and reduced worker hours and productivity losses
• Excessive royalties for mining and other resources
• Excessive development approval processes, in both time and cost
• General anti-business-profit policies

Countries that exhibit anti-business policies:

Developing Markets

In developing markets, there are usually a lot of new companies and ventures starting up and collapsing. Speculation is very high for several decades, and stock market prices are volatile as a result of speculation and poor regulation.

Over time, as the major stocks on each exchange become large and well established, the impact of speculation reduces. Once there is a group of big, profitable companies that consistently deliver high profits over several decades, volatility drops and the market becomes less speculative.

Countries that exhibit high speculation but are gradually becoming less speculative include:

The Impact of the S&P500 on Other International Markets

A significant fall in the S&P500 will cause an immediate fall in ALL overseas stock markets.

How Reliable Are the UIS Risk Ratings?

The Risk Ratings are based on the analysis of the 500 companies in the S&P500 Index. Each company releases estimates of Earnings up to 12 months ahead.

Research of S&P500 companies' Earnings Estimates has demonstrated:

• Companies' estimates of Earnings are slightly lower than the actual Earnings reported after the end of the quarter. They slightly underestimate to be conservative. Companies do not want to release worse results than estimates, to maintain management credibility.
• UIS Risk Ratings have consistently indicated all Bear crashes in the last 30 years, giving at least one month's warning.

Will the UIS Risk Ratings Perform in the Future as Markets Change?

Markets change but are somewhat cyclic. Bear and Bull markets occur in response to economic and other conditions.

Our Earnings research extends back over 100 years. The UIS Risk Ratings have been rigorously tested over the last 30 years.

During that time, the US stock market has gone through several Bull trends, Big Bear crashes and several smaller Bear crashes.