Increasing Risks Call for Caution on S&P 500 Trades

S&P 500 is the world’s largest index by market capitalization. Its companies have a combined market cap of more than $24 trillion. This is bigger than the GDP of the United States which currently stands at $18 trillion. The index’s top companies by market capitalization are Apple ($831B), Amazon ($724B), and Google ($711B).

As such, this is one of the most followed indices in the world. Investors use it to measure the performance of the global economy. This is because, most of the companies in the index derive most of their revenues from countries outside the United States.

In the past one year, the S&P has returned 13.4%, without dividends. The performance has weakened this year, where the index has struggled to break from its all time high of $2872.

This year, the investing world has had to come to terms with the increasing global risks including on trade and on inflation. This has in turn led to a surge in volatility which has led to investors being more cautious.

Last week, the index fell to a multi-weekly low of $2586 after Trump initiated new tariffs on China. Yesterday, it surged after reports emerged that the two countries were engaged in high level negotiations.

At this time, traders can buy the dips. However, they need to be extra cautious because of the increasing risks.

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