Does the ASX 200 just follow the US markets?

Does the S&P/ASX 200 Index (INDEXASX: XJO) just follow what the US markets like the S&P 500 do? The data might surprise you!

| More on:
australian and american flags on boardroom table

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Does the S&P/ASX 200 Index (ASX: XJO) just follow the United States markets? Do we even need to watch the ASX when we could really just watch the Dow Jones or the Nasdaq?

These are the questions we'll be answering today.

If we look at the recent performance of the ASX 200 index (the largest 200 Australian shares) in conjunction with the S&P 500 Index (the largest 500 American shares), some striking resemblances do become apparent.

Just take a look at this graph of the ASX 200 – represented here by the iShares Core S&P/ASX 200 ETF (ASX: IOZ).

IOZ YTD chart and price data | Source: fool.com.au

Now, compare this with the S&P 500 – represented here by the iShares S&P 500 (AUD Hedged) ETF (ASX: IHVV)

IHVV YTD chart and price data | Source: fool.com.au

Look familiar?

Digging a little deeper, the ASX 200 and S&P 500 both had their 2020 peaks on 20 February (Australian time).

Then, the ASX 200 fell 36.53% between 20 February and 23 March where it found its bottom for 2020 so far.

The S&P 500? It fell 33.92% over the same period and also found its lowest point for the year on 23 March.

Since then, the ASX 200 has risen approximately 35% off these lows. The S&P 500 is up ~43%.

So we have a same-day peak, a same-day trough and very similar gains and losses in between for both the US and Australian markets in 2020.

My forensic conclusion? Eerily similar.

What does this mean for ASX 200 investors?

As much as we might like to think that our own Aussie markets are independent of the US, the data doesn't suggest this conclusion.

Of course, there will always be localised nuances that move each market independently of the other. But on the 'big issues', it would appear that the American dog is wagging the ASX tail most of the time.

That, in turn, means that we all need to be watching the US markets like a hawk in my view (or more accurately, like a dove). The US Federal Reserve has been pumping an unprecedented amount of cash into the American financial system – far more than our own Reserve Bank of Australia (RBA) has been doing here. This, I think, is partly responsible for the massive rally in US shares we have seen over the past 2½ months. And it will also likely be the most influential force driving the markets over the rest of the year, in my opinion.

So if you're aspiring to be a 'serious investor' but you don't take an active interest in what the US markets are doing, it's probably a good idea to change that habit. As much as we'd like to think of ourselves as 'independent' of the US, the data shows this is not really the case.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on How to invest

Happy couple enjoying ice cream in retirement.
How to invest

I'd buy Woodside shares today to generate $1,000 of monthly passive income

At the current share price, I think Woodside can continue to deliver market-beating, long-term passive income.

Read more »

A couple lying down and laughing, symbolising passive income.
How to invest

No savings? I'd use the Warren Buffett method to earn lifelong passive income with ASX shares

Learn how to invest from Warren Buffett.

Read more »

Confident male executive dressed in a dark blue suit leans against a doorway with his arms crossed in the corporate office
How to invest

Investing in ASX shares? Why CEO pay DOES matter when misaligned

Wonder who topped the highest-paid CEO table?

Read more »

A young well-dressed couple at a luxury resort celebrate successful life choices.
How to invest

Could investing $10,000 in ASX shares make you a millionaire?

Is this the key to becoming wealthy? Let's find out more.

Read more »

A man in his late 60s, retirement age, emerges from the Australian surf carrying a surfboard under his arm and wearing a wetsuit.
How to invest

Looking to boost your retirement with extra passive income? Try this!

Securing a passive income stream could offer a big lift to your retirement lifestyle. Here’s how I’d go about it.

Read more »

A young woman holding her phone smiles broadly and looks excited, after receiving good news.
How to invest

These ASX 200 stocks turned $20,000 into $100,000+ in 10 years

Big returns were made by investors buying these shares back in 2014.

Read more »

Emotional euphoric young woman giving high five to male partner, celebrating family achievement, getting bank loan approval, or financial or investing success.
How to invest

7 tips for successful ASX shares investing: expert

AMP chief economist Shane Oliver shares what he has learned over 40 years in the game.

Read more »

Woman and man calculating a dividend yield.
How to invest

This Warren Buffett metric is at a never-before-seen high! What does it mean?

Warren Buffett's valuation indicator could be sending a warning.

Read more »