Introduction
Following the drops witnessed with the overall prices within the oil industry, it has been recorded that majority of the dependent industries have been reported devaluation in both their asset bases and their stock items. This is the suggestion of the Bushee and Miller (2013) on presenting the oil industry as one industry that is heavily depended upon by a majority of the sectors within commerce and industrialization. Suggestively, this is true based on the use of oil within the manufacturing sector, the energy and allied sectors, the transport sectors, and production industries. With this highlighted, the effect of oil is not only felt within the individual positions of company and sector performances, but also within the descriptions of investment performance and investment preferences. This highlights the interest of this essay to the analysis of the New York Stock Exchange (The NYSE). The NYSE is considered in this case, as the stock markets from which the effect of the oil prices shifts is to be examined. Additionally, the Standards and Poor’s 500 index (S&P 500) will be the main index that this analysis is to examine seeking to develop an understanding of the stock market’s performance in a comparative measure to that of the oil industry.
Operations efficiency of the NYSE
The checks on the operation efficiency of the NYSE are presented with a number of basic entries to the analysis. These are the number of companies that are listed in the stock market, the average turnover that the stock market has, the volume of trade, the prices on average, and the market capitalization of the market. These will evidently provide the position of interest that the inquiry on efficiency has. An efficient market is described as one that is not easily influenced by singularities within the sector of the market (Reilly and Brown 2011). This indicates that within the numerous companies listed, their stocks in the stock market, the position of the stocks market is again segmented to hold these stocks into sectors and industries. The segmentation can be independent making the sectors autonomous in operations and financial performance (Shapiro 2014).
The NYSE dates back to the year 1792, making it more than 200 years old. Arguably, this is one of the oldest and, therefore, can be expected to be one of the most active stock markets globally. The number of listed companies in the NYSE stands at 1,868, as of December 2015. This implies that the publicly traded stock items in the NYSE are 1,863 (NYSE 2016). It also describes the number of companies listed on these stock markets. Looking at the concerns that the average and total listings have, the scrutiny of investment is guaranteed or suggested based on these listings conditions of both local and international companies. Subject to the traditional positions that stock broking had, the NYSE stock market cumulatively brought the traders together. The amalgamation and the accumulation of the NYSE index present an opportunity of buyers and sellers to interact directly without being a concern of stockbrokers, which was responsible for reducing the profitability that these trades had. With the 1,868 listed companies, the market capitalization of the NYSE stands at $16.6 trillion. At this level, the capitalization brings the ranks of the NYSE to some of the bigger players within the American divide second only to the Chicago stock exchanges in North and South America.
According to Reilly and Brown (2011), the value of trade signals on the active stocks that are listed on the stock exchange. This develops a suggestion that with the 1,868 listed on the NYSE is traded every day and not all the shares of the trading stocks management to buy and sell on an average NYSE day. The volume of trade as of December 2015 the values of shares trades stood at 7,436.8 million shares, which was one, the highest turnovers of trade volume months for the year 2015 (NYSE 2016). On average, the trade volumes have maintained levels above 5,000,000 shares except for the month of February 2015. Moreover, the prices for the NYSE composite index have been averaged at 10,061.07 as of 5th of April 2016. The valuation of the average price is considered in this case representative of the cumulative 1,868 stock items listed on the stock market.
Comparatively, having presented these index measures and identities for the NYSE, the efficiency needs to be clarified as a position that looks more at the trends rather than the values that these items have provided. Looking at the trade volume traded from January 2015 to March 2016 the following trend is established.
Figure 1 volume of trade trends
Figure 2 trading day’s trends
Looking at the volume of trade (figure 1) and comparing to the days of trade (figure 2) in which had the stocks operate, the efficiency of the NYSE is suggestively average. This is based on the upwards increase on the volume of trade from January 2015 to March 2016. Strictly defining the position of market efficiency with the provision of information to investors, the NYSE trading information defends its score to above average. This being the fairness of information asymmetry as suggested by Shapiro (2014) on grading the market as efficient
The Primary Index Analysis
The S&P 500 is the primary index of the NYSE, popularly known as the S&P. this is described as an index of 500 companies with the largest market capitalization listed on the NYSE. According to Bushee and Miller (2013), the index is, therefore, a representative of the movements that the market will be having based on the consideration that the top 500 companies by market capitalization. These companies will most probably be from different sectors. The S&P 500 is, therefore, a good analytic index to suggest on the trends that the economy, in general, might be having based on the generality and the different characteristics that the 500 companies will be having.
It is possible to suggest that the top 500 companies listed on the NYSE based on market capitalization can also be some of the best and the worst performing companies listed on the market. It borrows from Brooks and Mukherjee (2013) that the issues of stocks performance do not borrow directly from the market capitalization or the internal factors. More of the performance is a trickle down reflection from the operations of the market in detail externally.
Looking at the trend analysis the monthly data for the S&P average closing prices is provided below, the returns have been plotted to suggest on the profitability and the NYSE in general from the year 2013 to end of 2015.
Figure 3 S&P returns
The performance of the NYSE as suggested by the S&P 500 cannot be limited to the estimations of the market being bullish or a bear. This is based on the constant shifts into the bulls and the bears over the three-year period. Such moves can be identified by sectored shocks within the various industries at play and more specific those of the oil industry. With the reduced oil prices at the end of the year 2013, the NYSE profitability drops down signaling the losses attributed from the oil sector. With the solid position of these prices, we see a rise in the profitability that the bullish characteristics of the NYSE has as we move from April 2014 to June 2014.
Arguably, looking at the starting and the closing returns that the NYSE has as averaged by the S&P 500, the application of the industrial performance needs to be placed in reference to these returns. Looking at the oil process in this time, the following trend is established.
Figure 4 Oil closing prices (monthly) (Macrotrends 2016)
The prices of oil have been dropping consistently, as seen with the trends of the closing monthly prices. It is impossible to suggest any relationship based on the closing prices being simply average prices rather than the shifts in the oil sector. Therefore, looking at the percentage changes in the monthly prices of oil in the last three years the trend series established presents more of the discussion based on the ability that the oil sector has in influencing the other markets.
Figure 5 percentage changes on monthly oil prices
Compared to the returns that the S&P 500 has, one can note that there are a number of similarities on the movement of the bullish stock trends and the bears stocks of the NYSE as presented with the returns and the changes in the prices of oil per barrel. Therefore, to predict any movements in the NYSE one will need to be very aware of the index S&P 500 and the sector that influences a majority of these big companies. Additionally, the effect of the sector shifts as seen with the oil industry need be mapped better than relying on the closing prices to effect any rational decisions making on the probability of the NYSE stock market.
Reforms on the NYSE
Dating back to the year 2003, there has been a number of shifting positions on the regulation and the operations of the NYSE. Materially this has been developed based on the abilities that the NYSE has in regulating the fair environment for trade. Identifying with the moves that majority of scandals have been recorded with listed companies, there has been the need to suggestively provide cushion and an oversight role of the trade and operations of listed companies. Some of these changes have involved the restructuring of the board of management and the introduction of the securities and exchanges commission in the year 2003.
One of the deepest concerns will be that of the inclusion of some of the smaller companies into the operations of the trade on the NYSE. Looking at the emerging trends the capitalization of the NYSE is slated to receive a boost based on the inclusion of smaller companies with annual revenues of less than 1 billion. In fact, this has also opened the positions by which the NYSE regulates on the capital structures of the companies listed in its stocks market. They currently legislated to allow for crowd funding implying more and higher market capitalization. Moreover, the NYSE should be a concern about this position that they have with the market capitalization increase according to (Shapiro 2014). This is based on the lack of a cushion on the crowd funding insurance, which might take down the valuation of these small, and medium enterprises were the unsecured loans do not metalize and perform. In fact, the debate on these emerging trends of the NYSE and investment operations is that there are loss and total disregard on the investor protection initially enjoyed.
Second, on the emerging issues are the restructuring of the primary index and delisting of some of the orphaned stocks. The majority of arguments into these moves have been developed based on the profitability of the stock market in general. There have been stocks that attract very less or no trade on the floor making them a burden on the average profitability, and the sectional profitability that the NYSE would have better presented.
In this light, the current JOBS act as the SEC and the management of the NYSE are deliberating it, is to focus only on having the active stocks listed on the NYSE. This will present a situation under which the dormant stocks get delisted making room for other new players to competitively earn their places and attract more investors. The inquiry on delisting has gone further into analyzing the effect that the small and medium-sized companies have in this case. Traditional analysis has it that the majority of the small and medium-sized companies present less cushion to investor protection. Additionally, the large companies have always been preferred making reference to the reason why the S&P 500 choices to focus on the top 500 large companies in the NYSE.
Under the regulatory consideration, the SEC has floated a consolidation on the audit trail on the NYSE. This will be inclusive of the tracking of all orders made, the messages, and subsequent trades made. Looking at the concern of insider information, the SEC must be trying to limit such issues with the stock market operations (Pisani and Metaxas 2011). This will, therefore, limit the positions of undercutting that the wholesalers and some brokers have been having. In fact, the reforms will be requiring that the traders of the stocks market have to be listed in order to execute any order.
Conclusion
Introducing new stock instruments into the NYSE can be a position that will seek to deviate from the traditional stock market operations. As noted with the analytical presentation of the index measures of the NYSE, the performance of the stocks market can be swayed in particular directions as seen with the oil sector returns. Thus, the introduction of financial instruments can be a position under which the stocks market can be able to monitor and come out with a better return for the investors. This is one idea that is floated with the use of futures as financial instruments. Suggestively, the use of instruments would have been better placed as handling the expected drop in the prices of oil, therefore, signaling a bullish market for those holding the oil futures contracts as of 2013. Suggestively if their prices were higher at this point, the check would have been to sell them at the premium before having them drop as seen by the end of 2015.
Additionally, looking at the effect that the future would have been having, the performance of the NYSE would have been predicted based on the future expectation of the oil sector and the expected affiliation that the industries in the NYSE have. This would have presented a position from which the investors would have been able to benefit from the bullish signals, and avoided the bear signals from the oil sector and its returns.
Reference List
Brooks, R & Mukherjee, AK 2013, financial management: core concepts, Pearson.
Bushee, BJ & Miller, GS 2013, ' Investor relations, firm visibility, and investor following', The Accounting Review, vol 87, no. 3, pp. 867-897.
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Reilly, F & Brown, K 2011, 'Investment analysis and portfolio management', Risk Managements , vol 12, no. 2, pp. 1-19.
Shapiro, AC 2014, 'Multinational financial management', Journal of Financial Management, vol 1, no. 13, pp. 1-12.
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