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Market Turmoil Reasserts Influence of U.S. Capital Markets

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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 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.

On average about 7.1 billion shares in U.S. equities traded every day year-to-date through October 2018. On Friday, Dec. 21, 2018, when the Dow fell more than 400 points ahead of the Christmas holiday (trading on Monday, Dec. 24, was a shortened session), more than 12 billion shares changed hands in the heaviest volume day in at least two years.

While volatility in U.S. equities increased this year, the number of listed companies shares hasn’t changed much. As of September 2018, they totaled 5,334, down 11% since 2003, but up about 2% since the beginning of the year. (The peak was 8,090 in 1980.)

Included in this year’s total are 179 IPOs as of  October, up slightly from 173 for all of 2017. (The number of IPOs peaked at 860 in 1996).

Total U.S. fixed income issuance reached $6.3 trillion as of October. For fiscal 2017, which ended Sept. 30, total outstanding fixed income securities rose 3.4% from a year ago, to $40.8 trillion. Corporate issuance led, up 4.4%, followed by Treasuries (up 4%), mortgage-backed securities (up  3.1%) and munis (up 0.3%).

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