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Chart of the Week

The Relationship Between Stock Exchanges and Indices [Chart]

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The Relationship Between Stock Exchanges and Indices [Chart]

The Relationship Between Stock Exchanges and Indices [Chart]

Plotting almost 5,000 U.S. Large Caps on the NYSE, NASDAQ, S&P 500, and DJIA

The Chart of the Week is a weekly Visual Capitalist feature on Fridays.

The NYSE and NASDAQ are the two largest stock exchanges in the world by market capitalization. However, what is their relation to major indices such as the S&P 500, S&P 100, and the Dow Jones Industrial Average?

Today’s chart breaks down the composition of the 4,500+ large cap stocks that are traded on the NYSE and NASDAQ, showing how the indices are currently derived. (For another refresher, check out our post on the difference between the Dow, S&P 500, and the NASDAQ.)

The S&P 500, founded in 1923, is considered one of the best overall indicators of the U.S. stock market. Composed of 118 companies from the NASDAQ and 382 companies from the NYSE, it represents the 500 companies with the highest market capitalizations that have common stock listed on either exchange. The S&P 500 is a capitalization-weighted index with components weighted based on the total market value of their outstanding shares. The larger the company, the more the impact it will have on determining the price of the overall index.

The S&P 100 is similar to the S&P 500, but it is composed of the 100 largest companies on the market, with 79 from the NYSE and 21 from the NASDAQ.

Lastly, the Dow Jones Industrial Average is made up of 30 stocks, with 26 based on the NYSE and 4 based on the NASDAQ. The Dow ensures that it picks companies from every industry, while the S&P 100 picks the 100 largest companies by market capitalization. That’s why Travellers Companies Inc., at a market cap of $34 billion, is the only company on the Dow that is not on the S&P 100.

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Chart of the Week

Mapped: The Countries With the Highest Housing Bubble Risks

Which real estate markets have the highest risk of seeing a correction? These maps highlight housing bubble risks using data from four key indicators.

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Mapped: Countries With the Highest Housing Bubble Risks

With a decade-long bull market and an ultra low interest rate environment globally, it’s not surprising to see capital flock to housing assets.

For many investors, real estate is considered as good of a place as any to park money—but what happens when things get a little too frothy, and the fundamentals begin to slip away?

In recent years, experts have been closely watching several indicators that point to rising bubble risks in some housing markets. Further, they are also warning that countries like Canada and New Zealand may be overdue for a correction in housing prices.

Key Housing Market Indicators

Earlier this week, Bloomberg published results from a new study by economist Niraj Shah as he aimed to build a housing bubble dashboard.

It tracks four key metrics:

  1. House Price-Rent Ratio
    The ratio of house prices to the annualized cost of rent
  2. House Price-Income Ratio
    The ratio of house prices to household income
  3. Real House Prices
    Housing prices adjusted for inflation
  4. Credit to Households (% of GDP)
    Amount of debt held by households, compared to total economic output

Ranking high on just one of these metrics is a warning sign for a country’s housing market, while ranking high on multiple measures signals even greater fragility.

Housing Bubble Risks, by Indicator

Let’s look at each bubble risk indicator, and see how they apply to the 22 countries covered by the housing dashboard.

It should be noted that most of the measures here are shown in an index form, using the year 2015 as a base year. In other words, the data is not representative of the ratio itself—but instead, how much the ratio has risen or fallen since 2015.

1. House Price-Rent Ratio

When looking at housing prices in comparison to rents, there are four countries that stand out.

New Zealand (196.8) and Canada (195.9) have seen ratios of housing prices to rents nearly double since 2015. Meanwhile, Sweden (172.8) and Norway (168.2) are not far behind.

Elsewhere in the world, this ratio is much more in line with expectations. For example, in Portugal—where house prices have skyrocketed over recent years—rents have increased at nearly the same rate, giving the country a 99.2 score.

2. House Price-Income Ratio

There are three familiar names at the top of this bubble indicator: New Zealand (156.8), Canada (155.3), and Sweden (145.7).

In places where rents are lagging housing prices, so are the levels of household income. For how long will people afford to buy increasingly expensive houses, if their incomes continue to lag?

3. Real House Prices

Real house prices have increased in all of the 22 markets, with the exception of Italy (95.5).

For this indicator, there are five markets that stand out as having fast-rising prices: Portugal (131.8), Ireland (127.6), Netherlands (121.9), Canada (124.1), and New Zealand (121.9). The latter two (Canada/New Zealand) have appeared near the top of all three bubble indicators, so far.

4. Credit to Households (% of GDP)

Exceedingly high debt ratios point to a strain on consumer finances – and when finances are strained, the chance of a default increases.

Switzerland (128.7%), Australia (120.3%), and Denmark (115.4%) top the list here with consumer debt far exceeding country GDP levels. However, Canada still makes an appearance in the top five with a debt-to-GDP ratio of 100.7%.

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Chart of the Week

Trump’s Relationship with the Price of Oil

What goes through the head of a U.S. president? The tweets of U.S. President Donald Trump reveal a contentious relationship with the price of oil and OPEC.

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Visualizing Trump’s Relationship with the Price of Oil

What goes through the head of a U.S. president?

That is a question that both voters and leaders alike would love to know the answer to. As it stands, scores of pundits and analysts already dissect everything from the choice of a tie, to whom a leader sits next to at a state dinner, to glean the potential direction of government policy.

Financial markets rely on the accurate interpretation of government policy to guide investment decisions. But what happens when you’re faced with a world leader who broadcasts his unfiltered thoughts instantaneously and globally? It’s sure to stir up international attention.

This week’s chart is inspired by work done by John Kemp, an energy reporter for Reuters. Kemp tracked all instances of U.S. President Donald Trump’s tweets mentioning oil and OPEC, against the shifting price of oil.

Where’s Your Head At?

U.S. President Donald Trump has actively worked to tie the success of his administration to the fortune of the economy and stock market.

If the economy does well, Trump hopes cheap gas at the pump will help translate into votes at the ballot box in 2020.

The key to keeping the economy growing is access to cheap energy, and oil is the critical commodity that’ll keep a fragile economy on the road. This is a line of thinking that can be seen throughout Trump’s tweets on the subject.

Tracking Trump’s Tweets

This week’s chart tracks President Donald Trump’s tweets from April 2018 to March 2019 that mention oil and OPEC.

Pre-Sanctions

The tweets start five months before the deadline of sanctions on Iran. During this timeframe, speculation that Trump would place sanctions on the oil-producing nation drove up the price with the prospect of a restricted supply of oil and increased tensions in the Middle East.

Despite the implications of U.S.-imposed sanctions, Trump squarely put the blame on OPEC for this period of rising oil prices. Tweets such as “OPEC is at it again. Not Good!” or “The OPEC monopoly must get price down now!” can be seen in this period.

Whether these tweets had any influence on oil producers is unclear, but they certainly outline a policy preference for cheap oil and a general animosity towards OPEC.

Post-Sanctions

On Nov. 4, 2018, Trump did impose sanctions but excluded Iranian oil exports, deflating a speculative bubble around the price of oil, and the president’s ire towards the region.

In the aftermath of sanctions, repeated news of record oil production and growing energy independence in the U.S. helped drive the price of oil back down. Though the president’s mood lightened, he still persisted in his accusations of OPEC manipulating the price.

Prices continued to fall, plummeting to nearly $50 per barrel by the end of 2018. Cheap oil is a direct threat to the profits of OPEC nations, but higher prices can create an array of challenges for the U.S. economy.

So despite a U.S. alliance with Saudi Arabia, this is a natural tension baked into the relationship.

So, what would a U.S. foreign policy look like without dependence on the Middle East?

Shifting Sands

The Middle East has had a considerable influence on U.S. foreign policy since the harsh lessons of 1970s energy crisis. Multiple wars of intervention to protect Saudi oil interests—and in turn, ensuring continued American access to oil—have ravished the region and led to a state of dysfunction and constant tension.

However, with the recent declaration of American energy independence, this relationship may change with a renewed prospect for peace. Trump may work to further undermine the power of OPEC to control oil prices, as well as the Middle East’s influence on U.S. foreign policy.

American energy independence is already challenging established relationships around the world. For example, Ukraine just recently accepted its first shipment of American oil in a move to counter Russia’s influence in the region.

A New Era

Diplomacy by Twitter has yet to prove to be an effective bridge in sustaining good international relations. That said, charting the tweets of world leaders is a unique way to interpret government policy and energy economics in this new era of social media.

It seems that the next time you want to know what is going through a leader’s head, you can simply try checking their tweets.

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