The Global Influence on the U.S. Stock Market

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The movements of international financial markets can impact the U.S. stock market. Find out how recent global events have affected U.S. stocks and what implications these events have for investors.

Chinese Stock Market Impacts Wall Street

China is the world’s second-largest economy, according to The Guardian’s Katie Allen, so movements in this market greatly affect others around the globe. In the 12 months to mid-June 2015, shares in China had jumped to 150 percent as investors placed their money in the Asian nation. However, when the industry began buzzing that shares were overvalued, China’s stock market began to dip sharply in July. In August, the Chinese government shocked money markets when it devalued the yuan.

As China’s shares fell, so did those shares in key markets around the world, including the United States. On Wall Street, the Dow Jones industrial average fell by a record 1,000 points during this period. That fall is primarily because many U.S. companies are actually global corporations that rely heavily on Chinese business. For example, Chinese revenue exposure accounts for roughly 70 percent of business for Wynn Resorts. Broadcom and Yum! Brands are two other American firms that rely on China for more than half of their business.

“Now the bubble is bursting, and China is not going to be a revenue growth driver. That puts even more pressure on the U.S. and Europe to make up the difference,” explains Bob Pisani, a CNBC stocks expert.

Greek Debt Crisis Hurts U.S. Shares

The fall in Chinese stocks can be traced back to Greece’s debt woes, which spiraled out of control when the European nation shut its banks for a week in June. Following this closure, David Jolly and Keith Bradsher of The New York Times reported that The Shanghai composite index dropped as much as 7.6 percent before closing 3.3 percent lower. Wall Street stocks also took a battering, along with investors in European markets who worried Greece’s problems may spread throughout the continent.

While Greece may be a small nation geographically, its role as part of the European Union give its financial concerns a greater global significance.

Global Events Impact U.S. Businesses and Individuals

Learning about financial markets and institutions is one of the components of a graduate-studies program for a Master of Business Administration (MBA) degree. Financial managers must understand international markets. As Linda Ray, writing for the Houston Chronicle states, even small businesses operate in a global economy. Financial managers consider what’s happening in international financial markets when making their own business decisions. But members of the C-suite aren’t the only ones who should be concerned about the financial climate of other nations.

People with shares can also be affected by the movements of international markets. Allen states people who don’t need to access their share funds for many years shouldn’t worry too much, as the market is likely to recover from any global fluctuations over time. However, anyone who needs to draw capital from their stocks after global movements have reduced the value of local shares is likely to take a financial hit.

No financial market exists in a vacuum. As recent events have shown, what happens on the world stage greatly impacts the state of the U.S. stock market.

The Guardian
The New York Times