Why Do The Major Market Indeces Move Together

Discussion in 'Indices Discussion' started by rwtbrad, Feb 16, 2018.

  1. rwtbrad

    rwtbrad New Member

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    When I look at the market indeces (S&P500, dow, nasdaq)....on any given day, they look like a carbon copy of one another. They go up and down with the same relative amount throughout the entire day.

    Probably a newbie question....but why is that? What is driving that?

    When I buy or sell a stock, I'm not buying or selling across all three indeces...so trying to wrap my head around what or who is making this happen?

    Is it 100% institutional investors that have major positions across the board, and they are making buys and sells across the board at the same time?

    Is it some computer driven modeling that is on autopilot?

    Any thoughts?
     

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    Last edited: Feb 18, 2018
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

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    It is largely the big institutional players who move the markets. But if you follow the 3 major indices very closely, you'll see that they don't often move together all that closely day to day.

    I recall one day recently when the Dow closed up at least 350 points, and the Nasdaq was down something like 120. Of course that is not typical. Usually they all tend to move in the same direction if the markets are volatile (either up or down), and they tend to close each day fairly close to one another when markets are relatively calm.

    I've found that many of the stocks in the Nasdaq index and that many trading on the Nasdaq exchange in general tend to be more volatile than stocks in the Dow and S&P 500, and that trade on the NYSE (or AMEX to a lesser degree)...

    The Nasdaq exchange also tends to be more prone to technical glitches than the others.
     
  3. Buyonthedips

    Buyonthedips Senior Investor

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    The NASDAQ tends to consist of more technology-based companies which in turn leads to greater volatility. If one market has a significant fall then very often, as JR mentioned, a reaction on other markets can be delayed to see if this was a short-term blip or the start of a new trend.
     
  4. rwtbrad

    rwtbrad New Member

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    I appreciate the responses, but not sure if I made my question and observation clear. I'm talking about the fact that on almost any given day, if you just look at the chart of each indece rising and falling, the patters are almost identical. at 10am, the S&P500, Dow and Nasdaq go up 3%, then at 11am, they all fall by 1.5%, then 12, they all fall another 1%, then 1, they all rise 1.6%, etc. etc. etc. during the day. Obviously they aren't moving in exactly the same amounts and %, but if the nasdaq daily chart looks like a humpback whale, they all look pretty much like a humpback whale. JR's answer makes the most sense: big institutional investors. Who else would have positions across the major markets and indeces and be making buys and sells in concert.
     
  5. Buyonthedips

    Buyonthedips Senior Investor

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    Ah right I see what you mean now - sorry for the confusion.
     
  6. kirtimeliwal

    kirtimeliwal Senior Investor

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    Yes, its right and I agree with you. The charts explains everything about the ups and down.
     

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