Question

Globalization is supposed to provide diversification benefits that domestic sectors in US can not. Find three examples where foreign events led to major set-backs in US stock markets and Discuss why those events affected the US markets. Please give examples and data and figures to support your answer.

Answer 1

Globalization will open up the market for a country at the same time it comes with some inherent problems associated with it. Some of the examples where foreign events led to major set backs are given below.

• Japanese earthquake in 2011 has affected US stock market and market was down due to trade relations and foreign exchange uncertainities
• Brexit: United Kingdoms withdrawal from Europian union which was announced in 2017 had brought the market to high volatility and uncertainity. Not only US market but all the major markets was negatively affected by this news due to the uncertainities that can come in the future.
• Covid In the month of February when the market realized the danger of Covid and its spreading potential from the cases in Italy, the market crashed drastically to a new low in recent years.

Most of these cases apart from Covid have occured due to the trade relations, foreign investments and interdependancy of USA with other markets. Due to globalization, USA is dependend on other markets for its trade exports and imports as well as there are foreign investments( both direct and indirect) in US market and vice versa. Hence there is always a positive correlation between US and other major markets like Japan, China, Singapore etc and any events can affect all the markets based on its impact potential.