Published: November 6, 2015
The domestic markets here in the United States are heavily dependent on what goes on in foreign markets. The major indexes, the Dow Jones Industrial Average (DJI), the S&P500 (INX) and the NASDAQ (IXIC), can have major swings from day to day. These ups and downs in the indexes stem from events and market forces happening both in the U.S. and abroad. Most recently, the central bank in Europe and China’s economy have had some major influences on what has been happening in the market domestically.
There have been a lot of news headlines recently regarding the Federal Reserve and whether or not the central bank will decide to raise interest rates this upcoming December. After their recent meeting in October, Yellen and the Fed decided to hold interest rates as they were, at virtually zero percent. However, the European Central Bank has made moves regarding its monetary policy. President Draghi announced the ECB’s plan to have more quantitative easing and to reduce the interest rates in order to increase Europe’s lagging economic growth. When this news came out, the market reacted positively with the DOW reaching its highest levels since early September. A lot of U.S. companies that are traded on these major stock exchanges do business abroad, so this news of increased monetary stimulus excited the markets.
In August, the market took a downhill turn when China devalued its currency, the yuan. China is a major player, being the world’s second largest economy. China had a growth target of seven percent GDP for the year, and it missed this target with growth coming in at 6.9 percent. Slow growth in China affects firms conducting business in the Asian country, as investors have been able to count on China for consistent growth, and the data coming forward represents signs of slowing growth. But it seems as if China may be on the return to its previous economic state, as Apple profit increased 31 percent in the fourth quarter. This jump was due to an increase in demand for its iPhone, with the demand stemming mainly from China. Just this one instance shows how much one company can benefit from the economic conditions in a foreign country.
Globalization is a key factor in today’s society, and it is necessary to understand how the interrelatedness of markets work. Businesses now have an international presence with offices in many countries and regions throughout the world. This means focusing on only the U.S. market is no longer sufficient, as the markets are now more integrated than ever. Junior psychology major Josh Peri notes, “I definitely see how the markets are more global than ever before. It is important to be aware of what’s happening in other countries, as it can have a direct effect on the United States.” Senior economics and entrepreneurship major Jimmy Jencarelli adds, “The importance of Asia is increasing, as large companies in the U.S. have a growing amount of their revenues deriving from international markets. The Asian economy represents an important area of growth for American companies.” He also factors in the effect the foreign economy can have on the Student Investment Fund, PRISM, remarking, “PRISM has to be responsive and aware of how adverse effects in Asian markets could negatively affect our U.S. equity holdings. However, if there is stabilization in the Asian economy, we could seize the opportunity and see the benefits in our portfolio.”
All in all, the world is becoming more connected, and we need to be aware of how foreign events can affect domestic affairs. To conclude, operations and information management professor Ozgur Isil, Ph.D. says, “We’re all in the same boat and the boat is shrinking,” meaning that globalization is changing how individuals connect and proves how one decision could have impact elsewhere.
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