Up until very recently the expression, “When the United States sneezes, the world catches a cold” explained why overseas stock markets often plummeted after U.S. stocks declined. While the connection now may be more nebulous given the growth of China’s economy and other factors, the United States remains influential, as the recent global decline in stocks illustrates.
When the Dow Jones Industrial Average fell 650 points, or 2.9% on Monday, Dec. 24, for example, the Nikkei 225 Index lost 5% and the Shanghai Composite Stock Index finished off 0.9%, falling as much as 2.3% during the session.
“The U.S. capital markets are the largest in the world and continue to be among the deepest, most liquid and most efficient,” according to the SIFMA 2019 Outlook, Trends in the Capital Markets.
The U.S.capital markets represent a multiple of GDP — equities, at 162% of GDP; fixed income markets, at 207% of GDP. In the global arena, U.S. equities represent 38% of the $85 trillion in global equity market cap, or $32 trillion, according to SIFMA. That’s more than three times the size of the next largest global equity market, the European Union (excluding the U.K.). On average, around 6.9 billion shares are traded on U.S. equity markets every day, based on data through September 2018.
The U.S. fixed income market similarly accounts for 39% of the roughly $100 trillion global fixed income market, which is almost twice the size of the EU market, excluding the U.K., also the world’s second largest. U.S. Treasury securities comprise 36% of this market, followed by mortgage-backed securities (23%), corporate bonds (22%), munis (9%), agencies (5%), asset-backed securities (4%) and money markets (3%). Roughly $500 billion of U.S. government bonds trade daily.