We hear about the share market almost every day. But movements in indices such as the S&P/ASX 200 and Nasdaq Composite do not necessarily show what is happening to every company or investment.
Some shares may rise while others fall, and an individual investment portfolio may perform differently from a headline index.
When a headline says “the market rose” or “the market fell,” it is often referring to a share market index, such as the S&P/ASX 200.
An index measures the performance of a defined group of securities. Because indices cover different companies, industries and countries, they can move in different directions on the same day.
The S&P/ASX 200 is an index comprising 200 eligible securities listed on the Australian Securities Exchange. Its constituents include businesses from sectors such as banking, mining, healthcare and retail.
The index is weighted using the market value of shares available to investors. As a result, larger constituents generally have more influence on its movement than smaller constituents.
Read more about what an ASX record high may mean for investors.
The Nasdaq is a US stock exchange. References to “the Nasdaq” in market reporting often mean the Nasdaq Composite Index, which covers a broad range of securities listed on that exchange and has substantial exposure to the technology sector.
The Nasdaq Composite and S&P/ASX 200 cover different markets and sectors, so their performance can differ. US technology company results may have a greater influence on the Nasdaq Composite, while large Australian banking and mining companies may have more influence on the S&P/ASX 200.
Share prices change as investors buy and sell based on their assessment of companies and future conditions. Factors can include company results and outlooks, interest rates, inflation, employment, consumer spending and investor expectations.
Markets may therefore rise following weak economic news or fall after positive company results if the information differs from what investors had expected.
An index combines the weighted movements of many constituents. Gains in some constituents may partly offset falls in others.
For example, one company could fall by 40% while another rises by 20%, yet the index may move by a much smaller amount. This example is illustrative only. The actual index movement would depend on each constituent’s weighting and the performance of all other constituents.
Many super funds invest in Australian and international shares, as well as assets such as bonds, property and cash. Changes in the value of those investments can affect a member’s super balance.
Shares, managed funds and exchange traded funds can also rise or fall as the value of their underlying investments changes.
Market movements may be particularly relevant when someone is approaching retirement or withdrawing from investments. The effect will depend on matters including their asset allocation, withdrawal needs, investment timeframe and circumstances.
An investment portfolio will not necessarily move in line with the S&P/ASX 200 or Nasdaq Composite. Its performance depends on the particular investments held and how they are allocated.
Learn more about bond yields and the possible effects of a slower economy.
Understanding the investments held in a super account or portfolio can help explain why its performance differs from market headlines.
Diversification spreads investments across assets, companies, sectors or markets. It can help manage some investment risks, but it cannot prevent losses.
Goals, financial circumstances, investment timeframe and tolerance for risk may also be relevant when assessing an investment strategy. A daily market movement, by itself, does not determine whether an investment change is appropriate.
Read our general guide to long-term investment strategy.
What is the difference between the S&P/ASX 200 and Nasdaq Composite?
They track different groups of securities in different markets. The Nasdaq Composite also has greater exposure to technology businesses.
If the S&P/ASX 200 falls, will my super fall too?
Not necessarily. The result depends on the investments held by the super fund and the investment option selected.
Why do some shares rise when the broader market falls?
Individual companies respond to company results, announcements, industry conditions and investor expectations, which may differ from broader market influences.
Does a market fall mean investments should be changed?
A market fall alone does not determine whether a change is appropriate. Any decision should take account of the investor’s circumstances, objectives, timeframe and tolerance for risk.
Indices can provide useful information about parts of financial markets, but they do not show how every investment has performed.
Understanding what is held in a portfolio, how investments are allocated and the purpose of the strategy can provide broader context.
To discuss your circumstances, contact PictureWealth and review the applicable Financial Services Guide before deciding whether to use its advice services.
General information only. This article does not take into account your objectives, financial situation or needs and is not personal financial advice. Consider whether the information is appropriate for your circumstances and seek advice from a financial adviser before making decisions.