STOCKS in the US are mainly traded on the New York Stock Exchange (NYSE), which has a physical location and less than half of its trades executed by floor brokers; and on the National Association of Securities Dealers (NASDAQ), which is a virtual exchange, where all trades are done electronically through a network of broker dealers.

The returns on the US equities are best measured by the returns of its three most popular indices, namely, the S&P 500, the DOW Jones Industrial Averages and the Nasdaq Composite Index.

The Dow Jones Industrial Average (DJIA) is a price weighted index of 30, blue chip stocks that are traded in the United States. It comprises some of the world’s largest and most influential firms such as Goldman Sachs, Nike, Coca-Cola and Exxon Mobil. The Dow dates back to May 26, 1896 with an initial composition of 12 stocks and a valuation of 40.94 points.

The S&P 500 is the index of choice for the US equities market as it consists of the 500 largest market value capitalisation stocks from leading industries that underpins the US economy. The index comprises stocks valuing US$1.6 trillion and covers approximately 70 per cent of the available market capitalisation. Berkshire Hathaway B shares, Ford and Phillip Morris International are stocks included in this index.

The NASDAQ Composite Index is a market value-weighted index of more than 5,000 stocks traded on the NASDAQ stock exchange. It includes US, non-US stocks, multiple sectors like technology (large exposure), financial, transportation, insurance and industrial; and speculative small capitalisation stocks. The returns generally reflect the performance of the technology sector and investors’ attitudes toward more speculative stocks. Two of its notable members of this index are Apple and Bay.

All three indices have made year to date returns greater than 20 per cent, confirming that the US equities market is experiencing a bull run (rising stock market prices). The year to date performance of the S&P 500, the DOW Jones Industrial Average and the NASDAQ Composite Index have been 26.11 per cent, 21.75 per cent and 30.37 per cent respectively, which are 81 per cent, 63 per cent and 77 per cent above their last five-year average return.

Other data and trends indicating a bull run are massive funds flow in stocks, large margin balances, high Bull/Bear ratio, record number of initial public offering, continued Federal Reserve bond buying (Quantitative Easing), growth in company earnings and high price earnings multiple for the S&P 500.

The all-time fifth largest amount of funds were invested in stock mutual funds and exchange traded funds for the period ending September 2013, which was 15 per cent less than the final amount invested in the stock market before the technology stock bubble of 2000; with an additional US$12.4 billion flowing into global equity funds for the week ending October 30, 2013.

Companies in the S&P 500 index have increased their earnings by 40 per cent to 4.2 per cent from 3.4 per cent for the last quarter, spurring investors to price in further increases in stock prices. These stock purchases have been funded by a record level of margin debt to the tune of US$401B as at September 2013. This has led to the percentage of market bears declining to 16.5 per cent, its lowest reading since May 2011.

Finally, a record-breaking 31 IPOs have been brought to market for the month of October 2013, making it the busiest month for US stock market listings since 2007; with 61 per cent of those companies losing money in the prior 12 months, making for an easy comparison to the technology stock craze of the 1990s.

Gladstone Wynter is the assistant manager, wealth division of Stocks & Securities Ltd. He can be contacted at GWynter@sslinvest.com.