Globalization is considered to be one of the most important characteristic features of the modern world. Given that the international integration of national economies has a very profound and long-lasting effect, globalization plays a key role in determining the future of the modern society. It is especially evident in the sphere of world’s economy as the majority of countries are connected nowadays much stronger than earlier. The research paper explores the nature of the US stock markets and their primary functions. The US stock markets are seen as one of the most globalized elements of the American economy. The current paper is an attempt to argue that the US stock markets are an integral part of the global financial system as (1) they undergo very strong influence from the other crucial stock markets, including, for example, European, Japanese or Chinese, (2) feel the impact of the US international politics, and (3) they quickly respond to the events that occur in the rest of the world.
The US stock markets have a long history dating back to the end of the eighteenth century. It is crucial to highlight the main stages of the US stock market development as such analysis helps understand what changes occurred in American markets in the twenty-first century. The first US stock market ever formed is Philadelphia Stock Exchange (PHLX) though it was later over performed by the New York Stock Exchange (NYSE) since the time it was formed in May 17, 1792 (Wójcik 121). The NYSE success was mostly determined by its location. The fact that the NYSE was as close as possible to the heart of all ongoing and outgoing trades in the US led to its rapid growth. Its location also helped it to develop into the major US stock exchange and the biggest international stock exchange in the subsequent years. The stock exchange as any other branch of business had its better and worse times. The biggest downfall of NYSE was a “Black Thursday, October 24, 1929 to Black Tuesday, October 29, 1929 marking the end of Roaring Twenties bull market and beginning of the Great Depression bear market” (Wetherby 45). As the stock prices could not decrease, the next few weeks were marked by a considerable recovery. However, with the US economy experiencing the Great Depression, by 1932 worth of the stocks was only at approximately one-fifth of their initial value in August of 1929 (Wetherby 76). Ever since Wall Street crash of 1929 and later repercussions of the Great Depression NYSE continued growing and developing into bigger, wealthier, and more influential organization in the US and in the world. Dow Jones Industrial Average (DJIA) experienced steady growth over decades of the US economic prosperity. Trading floor was opened to women. Later, the foreign brokers were admitted to NYSE, making it more globalized than before. Composite index of all common stock was also introduced, listing not only US corporations but also foreign companies.
The interconnections of the US stock marketі with other world’s biggest stock markets are becoming increasingly stronger within the last decades. Europe plays a very important role in the global financial system, so any fluctuations or crises at the European stock exchanges have a great influence on the US stock market. The main European stock indexes, such as FTSE 100, Euronext 100 and others, significantly affect the stability of the US market, especially in the situations when the European indexes rise or decrease very dramatically (Lamoreaux 69). Special connection can be seen between London and New York stock exchanges that are connected with a great number of different factors. As the European Union’s largest trading partner, the US stock market is aware of how the changes occurring in Europe are likely to affect the US economy. It must be also mentioned that while the earlier phases of European integration had quite a positive effect on US exports to Europe, the most recent phase after the introduction of euro and to the 2010s had a negative effect on US exports to Europe that had a negative influence on the US stock exchanges.
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The similar situation is observed between the US stock markets and the main Asian financial players, such as Japan and China. Although the Japanese stock market experienced a huge crash in 1990s, it started improving its stability and vitality since 2008 (Wójcik 98). However, the progress is not very fast. The Bank of Japan has been the largest holder of American Treasuries in the world, until this top place was occupied by China in 2008 (Wójcik 102). The main aim of this method is to keep the value of Japanese and Chinese currencies low relative to the US dollar. It makes the exports of these countries competitively priced. Therefore, the slow tempo of Japanese economy improvement has led to the situation when China became the major Asian partner of the US markets. China has witnessed extremely GDP growth rate during the last decades. Such fact made the key players at the US stock markets pay more attention to the Chinese and Hong Kong stock indexes. Shanghai Composite index has the biggest impact on the US markets making them dependant on its fluctuations. The top listings on Shanghai Stock exchange are PetroChina and Industrial and Commercial Bank of China that are crucial partners of many American companies (Wójcik 106).
Another factor that proves that the US stock market is becoming increasingly global is that it is more influenced by the changes in the American foreign policies than the internal affairs. The majority of the key players at the US stock market are international corporations with its image greatly dependant on the general image of the USA as a country. Therefore, the alternations in the US foreign policy cause quick changes in the stock market. The current stage of the global politics is characterized by the great uncertainty and weakness in different aspects of political economics. Many things changed after September 11, 2001 attacks, including a great number of US foreign and home policies. Such changes had a huge impact on all levels of the US stock markets. The NYSE and the Nasdaq were closed until September 17, the longest shutdown since 1933 (US Market Overview). Afterwards, despite obvious decline there was some increase in the investments aimed at different protection and security spheres. The US war on terror in Iraq and other countries of the region that followed the September 11 attacks was a very controversial decision of the foreign policy. It led to the increase of the US debt by trillions of dollars. One of the most crucial events occurred after 2010 was the downgrade of the US economy by Standard & Poor in 2011 (US Market Overview). It was caused by the inability of the USA to decrease their foreign debt. It can be partially explained by some ineffective decisions in the US foreign policy. The problems in the financial markets influence the foreign policy as it involves some important issues, ranging from the budgetary decisions the government of the United States makes to the type of foreign activities the country is planning (Lamoreaux 128). The relations of the US stock market and foreign policy prove that all the aspects of globalizing world have become much more interrelated and interconnected.
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The 2010s prove that the level of the US stock market globalization has reached a very high level. Most of the events that occurred in the 2010s showed that the US stock market was primarily affected by different events taking place outside the country, and influenced by the significant changes in the US foreign policy. The five years beginning from 2010 are perfect indicators of the growing dependence of the USA on the rest of the global economic system. 2010 could be labeled as the year of uncertainty and volatility. A great number of different events occurring all over the world led to “bumpiness” of the stock rates with quick rises and even faster fallings. Although stocks closed the year successfully yielding over 10% increase to main indexes, which was mostly a result of successive reforms and actions taken by the US government, uneasiness caused by Europe debts, possible default of Greece, and successive domino-effect of defaults in other European countries kept global economy in a stressful position declining possible growth (Stock Market Data). The unsteadiness continued in 2011 primarily with the same cause of concern regarding possible shifting of governmental crisis to Spain and Italy. This situation, combined with the downgrading of the US credit rating to AA+ first time since 1941 and concerns about France AAA rating, led to a major stock fall in August to 20% in two weeks in France (Stock Market Data). At the same time, the stock market fall around the globe showed how globalized the world is. All the assets gained at stocks in the first half of the year were lost in second returning indexes to the level of a previous year. Three years from 2012 to 2014 were relatively stable and it was common for almost all global stock markets. June to August 2015 resulted in another major stock fall in China. In a month and a half, Shanghai Composite index decreased 38% of its value (Stock Market Data). The collapse of oil prices that led to decrease of investment in emerging markets caused resonating negative effect on the global economics which, in turn, greatly influenced China. The US stock markets experienced short downfall, but they managed to recover quickly. Some politics were blaming the administration for borrowing too much money from China, thus connecting the countries’ economics very close and making the US Yuan-rate dependent. Therefore, the events of the 2010s prove that the globalization of the US stock markets has significantly increased over the last five years.
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To conclude, the US stock market of the twenty-first century is a very complex globalized system. At the beginning of its history, the national issues played more important role, but gradually at the twentieth century the US stock market became more dependent on other global financial players. The current stage of the American market development is primarily characterized by its close connection with European and Asian stock market indexes and its quick and strong reaction on any major events that occurred outside the USA. The interconnection between the US stock markets and other key players in this sphere, such as the European Union, Japan and China, has become much stronger in the recent decade. The US international politics and various decisions related to the US relations with other countries have a profound impact on the fluctuations of all stock exchange indexes. The same situation is seen with the US stock market response to the events taking place outside the country, such as Greece economic crisis and others. Moreover, this tendency towards the intensification of the globalization level is supposed to remain steady in the future.