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A record high for US shares on Presidents' Day

Ed Monk

Ed Monk - Fidelity Personal Investing

Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

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The closure of US stock markets on Monday, in observance of George Washington’s birthday, means an extra day for investors to bask in new highs for American shares.

The S&P 500 and the Nasdaq indices both closed at record levels on Friday to underline the strong start shares have made to 2020. It was a Valentine’s Day gift to investors, most of whom will benefit when the US stock market does well because American shares make up something like 40% of global stock markets by valuation. Any well diversified global portfolio will hold a healthy weighting in the US.

The S&P 500 represents the main market of US companies while the Nasdaq skews towards the technology sector. Both, however, are dominated by the small group of superstar tech firms which have been big contributors to stock markets returns over recent years. Facebook, Amazon, Apple, Netflix and Google - collectively known as the FAANGs - now account for something like 15% of the S&P 500 by market cap and holding them has been crucial to capturing the gains made in the US.

Index-tracking funds hold large positions by default (because they track the index in which the companies feature so prominently) but many funds run by a stock-picking fund manager do not. Some managers have ruled them out on the grounds that they are trading at high valuations but the ability of these companies to defy expectations mean that the FAANGs have generally lived up to - and exceeded - expectations.

Leading the pack has been Apple, which continues to post strong sales in both its traditional hardware categories but also growth in its other divisions where more reliable recurring revenue is the name of the game. The company has been busy buying back billions of dollars of its own stock, which is good news for investors in two ways. First, it removes the number of shares in circulation, handing a mathematical boost to the values of the shares that still exist. Second, it displays the confidence that Apple management has that the company is undervalued and will produce more than the market currently expects.

Can all this bullishness last? Clearly, a record high means some will look to take profits from here. Investors are currently looking passed the dangers to economic growth and stock market levels - the Coronavirus outbreak being just one example - but that may not last forever. Later this year the calm in markets will be tested by a Presidential campaign that promises to be among the more rambunctious in history.

So far, however, American shares have defied the gloomy predictions and just ground higher and higher. In a sense, investors have come to see giant, high-quality, growing American companies as a haven so, if that trend continues, further gains are clearly possible.

You can track the American market simply and cheaply using ETFs - exchange traded funds. Our Select ETF list groups a small number of ETFs together which our experts believe will track their stated market with a high degree of accuracy and at low cost. The iShares S&P 500 UCITS ETF features on the list and tracks the main US market for an ongoing charge of just 0.07%.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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