What moves the index price?

 The factors shaping an index price would largely depend on what assets the index consists of. 

For example, stock market index prices fluctuate based on constituent companies’ share prices. For commodity indices, on the other hand, commodity prices are crucial drivers. 

Economic news: Gross domestic product (GDP) data, which is announced quarterly, as well as monthly data on industrial production and consumer prices, are important drivers for the stock and FX markets. Positive economic releases in the US, for example, could boost the US dollar index higher. 

Interest rates set by central banks, such as the US Federal Reserve (Fed), Bank of England (BoE) and European Central Bank (ECB), also affect the broad performance of stocks and currencies. 

Expansionary monetary policy, including lower interest rates and active asset purchases, tends to drive stock market rallies triggering risk-on sentiment, whereas increased interest rates tend to weigh on stocks.

Company financial results: Companies that are publicly listed on stock exchanges are required to release their financial statements quarterly or half-yearly, depending on the exchange. 

The period after the end of a quarter, when companies announce their results, is known as the earnings season. Stock index volatility tends to increase during reporting as traders react to the financial results of the companies. 

Company announcements: Along with earnings reports, other announcements from companies – such as new product announcements, mergers and acquisitions (M&A), and changes in the top management – can have an impact on stock prices. This, in turn, can move a stock market index. 

Changes to index composition: Some stock market indices rebalance on a regular basis to ensure all their constituent companies continue to meet the listing requirements. The S&P Dow Jones and MSCI indices are rebalanced on a quarterly or annual basis following a review by their index committees. 

There may be a higher volatility around an index rebalancing event, yet those changes are typically known in advance and are likely to be priced in. 

Currency movements: Currency movements affect both stock market and currency indices. Stock indices weighted towards companies that generate most of their revenues abroad can be influenced by currency exchange rates. 

For example, the FTSE 100 (UK100) includes companies that have benefited from weakness in the value of the British pound (GBP) in recent years, as they received higher income when converting sales revenue in foreign currencies into pounds.

Geopolitical events: Elections and other political events can affect stock and NX market performance. US presidential elections exert an influence over markets internationally, as investors consider the impact the policies of an incoming administration are likely to have on the world’s largest economy.

Russia’s invasion of Ukraine has had a strong impact on markets amid Western sanctions on Russia and disrupted supply chains, driving up prices for energy and food.

Investor sentiment: Sentiment among stock market investors has a strong impact on index values. Indices sold off across the board at the start of the Covid-19 lockdowns, as investors anticipated the collapse in demand causing a recession. They started to rebound once vaccines were trialed successfully. 

Commodity prices: Commodity indices are naturally driven by prices of the commodities they track, whether they measure prices directly or track companies involved in the industry, therefore having an impact on commodity-linked stock market indices too. 

For example, share prices for the major oil and gas companies have climbed as crude oil prices have rallied, lifting the indices that follow their stocks.