What is a stock market index?
A stock index is a weighted-average construction of stocks that tracks the performance of a given market.
Stocks that make up an index are held up in what is figuratively called a basket. For example, an investor who buys a unit of the Dow Jones Industrial Average Index (DIJA) will be purchasing shares of 30 different stocks weighted according to their market capitalisation from the index’s basket.
Before looking at the top indices to invest in November, let’s go through some events that may shake markets in the upcoming month.
Fundamental factors that will influence the stock market in November
Often, top indices are economic proxies because of their broadness. A stock index is a representation of the whole and a pointer of how the economy is performing.
Analysts describe the best indices as economic barometers. From a trading point of view, a stock index can help identify the general pattern or prevailing sentiment of a market, further aiding a trader.
Since the financial market has been democratised and comprises investors with different goals implementing diverse trading strategies, selecting which indices to invest in November ought to be meticulous. As top indices gauge the mood of the market, it is imperative that a trader is up-to-date with global and region-specific fundamental events as they can adversely affect the trend direction of top indices.
In November, investors should keep their eyes on these market-turning events:
Admittedly, there is economic uncertainty around Brexit, the headlining political divorce between the UK and the European Union. Brexit is always in the news because of its global ramifications. As lawmakers discuss the modalities of an amicable exit from the EU, the UK’s economy could be heading to rough waters.
A “hard” Brexit, that is if the UK exits from the European Union without a trade or regulatory agreement, will be roiling. The consensus during Theresa May’s tenure was to avoid UK’s stocks.
A hard Brexit will have far-reaching consequences not only in the UK but the global economy will take a hit. It is estimated that if the UK exits without a deal, its economy could shrink by 9.3 per cent in the next 15 years.
Good news is that the Brexit tide has tapered and a deal could be struck judging from recent events. Nonetheless, to avoid exposure despite the reprieve of the past two weeks, investors may readjust their holdings and construct a defensive portfolio until clarity is found.
More quagmire is expected in the next two months following UK Prime Minister Boris Johnson’s decision to call for a general election on December 12 with the intention of forcing Brexit.
A December election, even if it’s an uphill task for Johnson, would be retrogressive and further stir the stock market forcing capital away from London.
The BOE has a £435bn QE in place and the Bank of England's Monetary Policy Committee held its base rate at 0.75 per cent during its meeting in September. Interestingly, the committee members reaffirmed their stance of increasing rates should there be a smooth Brexit and certain global factors improve.
Contrary to the BOE stance, global interest rates are pointing down. US President Donald Trump is heaping pressure and publicly castigating the Federal Reserve of their reluctance to slash rates and weaken the “strong” USD.
Globally, central banks of emerging economies are slashing interest rates, shoring their fledgeling economies and putting in place measures to stimulate growth. The BOE and the MPC committee members are unbowed, adopting a “wait-and-see” approach with their final decision squarely dependant on Brexit.
Top indices to invest in November
When determining the best indices to invest in November, it is important to account for the events above. Other fundamental influencing factors in the EU, the US and even China and Japan are important. The approach of central banks in formulating their best monetary policy is crucial. Furthermore, the US and China can shape markets with a trade deal to mitigate the effects of the ongoing trade war. Last but not least, the outcome of Brexit will shape these top indices for investing in November.
So, which are some of these top indices to invest in November? Let’s take a look.
This is a free-floating index that tracks the performance of Germany’s top 30 blue-chip stocks listed that are price-weighted against their market capitalisation and value. The DAX is listed and traded at the Frankfurt Stock Exchange.
Trade Germany 30 - DE30 CFD
This is a market capitalisation-weighted index drawn from a basket of 100 active non-financial stocks traded on NASDAQ. The index is traded through the Invesco QQQ Trust and the stock-issuing firm must have been listed at NASDAQ for at-least two years.
This index lists the UK’s top 100 companies by market capitalisation and is one of the oldest indices in the UK. Most of these stocks are from blue-chip companies and are composed by the FTSE-Group, a subsidiary of the LSE.
The price-weighted index is made up of the top 30 most traded blue-chip stocks from the NYSE and NASDAQ. It was launched in 1896.
The market-cap weighted index brings together the largest market cap stocks in the United States. The S&P composition is controlled by a committee that monitors the market capitalisation, liquidity, size and other variables of individual stocks of the index.
How to invest in indices
Trading can be rather intimidating. Keeping up with price action and fundamental news, as well as toggling between various charts and technical tools, can be energy sapping. However, it is always crucial to make in-depth research when looking for a best-suited financial instrument in which to invest.
Among a plethora of other options, one of the most popular ways of investing in modern markets is through contracts for difference, or CFDs.
CFDs allow trading on margin, while providing you with greater liquidity and easier execution. However, note that CFDs are a leveraged product. Therefore, winnings, as well as losses, are magnified.
You can learn more about CFD trading with our free online courses and comprehensive trading guides.
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