Myths about US stocks

The U.S. stock market is one of the largest, most active, and most influential stock markets in the world, attracting countless investors and traders. However, you may have some common misunderstandings or myths about the U.S. stock market, which may affect your investment decisions and returns. In this article, I will debunk some U.S. stock myths for you and use data and facts to verify or disprove them.

Myth 1: The U.S. stock market is the Dow Jones, Nasdaq, and S&P 500

When we talk about the U.S. stock market, we usually mention three major indexes: the Dow Jones Industrial Average (DJIA), the Nasdaq Composite Index (NASDAQ), and the S&P 500 Index (S&P 500). These three major indexes represent different aspects of the U.S. stock market, but they cannot cover the entire face of the U.S. stock market.

The Dow Jones Index is the oldest U.S. stock market index. It was founded in 1896 and consists of 30 large companies representing the U.S. economy, such as Apple, Microsoft, Coca-Cola, etc. The Dow Jones is a value-weighted index, which means that the higher the share price of each company, the greater its impact on the index. However, the Dow Jones Index only contains 30 companies and does not reflect the diversity and size of the U.S. stock market.

The Nasdaq Index is the most innovative U.S. stock market index. It was founded in 1971 and consists of all companies listed on the Nasdaq Exchange. There are currently more than 3,000 companies. The Nasdaq is a market capitalization weighted index, which means that the higher the market capitalization of each company, the greater its impact on the index. The Nasdaq index includes many leading companies in emerging industries such as technology, biology, and the Internet, such as Google, Amazon, Tesla, etc. However, the Nasdaq index has its limitations. It does not include companies listed on the New York Stock Exchange, and its emphasis on the technology sector may ignore the performance of other industries.

The S&P 500 Index is the most widely used U.S. stock market index. Founded in 1957, it consists of 500 large companies representing the U.S. economy and covers 11 major industry sectors. The S&P 500 is also a market capitalization weighted index, and its calculation method is similar to the Nasdaq Index. The S&P 500 Index is considered the best representative of the U.S. stock market because it contains approximately 80% of the market capitalization of the U.S. stock market and is well diversified and balanced.

In short, the U.S. stock market is not equal to the three major indexes, they are only part of the U.S. stock market. If you want to have a more comprehensive understanding of the dynamics of the U.S. stock market, you also need to pay attention to other indexes, such as the Russell 2000 Index (representing small companies), the Wilshire 5000 Index (representing all listed companies), and the MSCI US Index (representing global investors perspective of the U.S. stock market), etc.

Myth 2: The U.S. stock market is a reflection of the U.S. economy

When we talk about the U.S. economy, we usually focus on some macroeconomic indicators, such as GDP, unemployment rate, inflation rate, consumer confidence, etc. These indicators can reflect the overall conditions and trends of the U.S. economy, but they do not necessarily move in tandem with the U.S. stock market. In fact, there is a certain time lag and difference between the U.S. stock market and the U.S. economy.

First, the U.S. stock market is a forward-looking market that anticipates future economic development and profit growth, rather than past or current economic data. As a result, U.S. stocks may change ahead of economic turning points, such as falling before a recession and rising before an economic recovery. This means that you cannot judge the trend of the U.S. stock market based solely on current economic data. You also need to consider future expectations and signals.

Second, the U.S. stock market is a selective market that allocates funds based on different industries, companies, and risk appetites. Therefore, the U.S. stock market may show different styles and themes in different time periods. For example, it may prefer defensive consumption and utilities during economic recession, industrial and financial during economic recovery, and technology and biotech during technological innovation. wait. This means that you cannot analyze the U.S. stock market as a whole, you also need to focus on different sectors and individual stocks.

Finally, the U.S. stock market is a global market and is affected by other regions and countries around the world. For example, during the European debt crisis, U.S. stocks were dragged down by euro zone risks.