The United States boasts the world’s two largest exchanges by market capitalisation, with a combined value of around $US40 trillion, or more than 25 times the ASX. These US markets offer a range of unparalleled investment opportunities but there are a few things to understand before trading there.
What are the main US stock exchanges?
While there are actually 13 stock exchanges operating in the US, there are two that most investors will really need to know about: the New York Stock Exchange (NYSE) and the NASDAQ. Not only are these two the leading markets in the US, they are respectively the largest and second-largest in the world by market capitalisation.
New York Stock Exchange: The largest exchange in the world by market cap ($25 trillion) and home to the US titans of industry, the New York Stock Exchange is the most famous stock market in the world for good reason. Around 82 percent of the companies that make up the S&P 500 can be found in the 2,800 companies listed on the NYSE. This includes a roll-call of established blue-chip stocks like J.P. Morgan Chase, Berkshire Hathaway, Johnson & Johnson and Coca Cola. These companies tend to be stable and consistent performers, though often without the growth potential of some NASDAQ-listed names. The listing fees paid by companies are also higher on the NYSE compared to the NASDAQ, which makes it a less attractive option for smaller (and often faster-growing) companies.
NASDAQ: The NASDAQ (or National Association of Securities Dealers Automated Quotations System if you’re curious to know it’s rarely used full name), is the second largest ($17.2 trillion) and is home to the giants of tech, including Apple, Microsoft, Facebook, Alphabet (Google) and Amazon. Unlike the NYSE, the NASDAQ tends to attract high-growth-potential stocks and as such tends to be a more volatile market than a lot of exchanges. As the name suggests, the NASDAQ is an automated trading system and has no physical trading floor, unlike the NYSE.
Factors that influence the US stock market
From world events to data releases, there are a multitude of factors that influence stock market changes. As long as a market is open, there is always going to be price movement and that’s no different in the US. While many of these will be hard to predict, such as geo-political tensions and the Covid-19 pandemic, many of these factors and the effect they will have on the market are understood well in advance. Some of these include:
GDP (economic growth) figures (released monthly )
Employment figures (released monthly and weekly)
Elections (every four years for Presidential elections or two years for Congress)
Inflation figures (released monthly)
Interest rate decisions (eight times a year)
Company earnings season (every quarter)
All of these events, plus a host of others, can impact the market and it’s important that anybody with shares in the US market is aware of when they are going to occur and what effect they may have on their investments. Thankfully, most of this information is available in your economic calendar – perhaps one of the best tools in any investor’s arsenal.
As a trader, it is also very useful to follow analysts’ forecasts for economic data releases and company earnings as the market impact of these events will usually hinge on whether or not the outcome matches expectations. To take a very simplistic example: if analysts are predicting a half a percent increase in GDP for the quarter but GDP actually rises by one percent, the market may rally, while if the result fell short of expectations the market may fall.
In the case of an election the share market can be affected throughout the entire year, especially the months leading up to polling day, depending on expectations. As with other key events, these can also be the source of significant volatility on markets. For example, on the night of the 2016 election, the S&P 500 fell 5 percent in pre-market trading following news of a Donald Trump victory, yet by the time the market closed the following day it had seen an increase of 1 percent.
Other things to consider
W-8BEN
Before you start trading US shares, you will need to complete a W-8BEN form. This is mandatory for anybody earning certain types of income in the US. Providing this information will allow you to claim a reduction in the amount of US tax you’re charged on dividends from US shares.
Currency risk
Currency fluctuations can amplify gains or exacerbate losses, depending on the situation. There are numerous other possible scenarios; the Australian dollar could rise in tandem with your US portfolio, effectively wiping out some of the gains, or the $A could fall while your portfolio stayed virtually flat – leading to a gain even though your stocks are not worth more in US dollar terms.
Trading hours
As with the ASX, stocks in the US can only be traded during the opening hours of their exchanges – which is from 9:30am until 4pm, Monday to Friday, New York time (excluding public holidays). For those based in Australia, this means a trading window from 1.30 am to 8 :00am AEST in summer or from 11:30pm to 6am AEST in winter. This may be a deterrent for some but can be attractive to those looking to trade outside their normal work hours – especially early risers or night owls.
The good news is US stocks (and other international shares) can be traded as easily as domestic ones on CMC’s share tradingplatform. Buy and sell orders can also be set outside official trading hours for those unable to monitor the US session live.
