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Wall Street Stock Market: Why is It Such a Powerful Influencer?

By SiliconIndia   |   Wednesday, 30 August 2017, 12:01 Hrs
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Wall Street. Just a few blocks in Manhattan that have sway over the entire global economy. Financial institutions, however, don’t have to be New York-based. Wall Street, or simply the Street, refers to the global investment and finance community.



Historically, ‘Wall Street’ had been applied to the leading US brokerages, until 2008, when the distinction between commercial and investment banking moved from being crystal clear to almost invisible. Now, the Street is home to and a collective term for the most influential investment and commercial banks, hedge and mutual funds, traders, stock exchanges, underwriting firms, insurance companies, and more.



Global trading hub



The United States is the biggest country in the world in terms of GDP, with a worth of $18.57 trillion as of 2016. The US GDP represents 29.95% of the global economy. Taking this into account, this makes the Streetthe financial heart of the world’s richest country.



The Wall Street stock market is comprised of the two largest exchanges– the New York Stock Exchange (NYSE) and NASDAQ – with the total market cap of $19 billion and $6.8 billion respectively.



Navigator of global economy



The Wall Street stock market and the global economy are interrelated. An upturn in the stock market generates an increase in the wider economy. In times of uncertainties, however, the correlation between economy and the market is less certain. A bearish market can cause recession, but this isonly one of two scenarios. The economic impact of the Street Crash of1929 led to a disastrous event – the Great Depression of the 1930s. Conversely, the 1987 crash didn’t produce any significant decline in the economy.



The Street impacts the US economy, which in turn dominates the global economic situation. The dot.com and the housing bubbles, which perpetrated the recessions of 2000–2002 and 2008–2009, originated from America. Inversely, Wall Street can encourage the global expansion as well. For example, the bullish situation in the equity market was a prerequisite for the world’s economic expansion of 2003–2007.



Wall Street and economic indicators 



Economic indicators are metrics that help determine where an economy goes. If a released indicator outperforms the expectations, the effect produced on the Wall Street stock market will be positive. The opposite also rings true. Both positive and negative effects are reflected in the behaviour of stock market indices, such as theS&P 500 and the DJIA.



For example, an economy is expected to have an unemployment rate of 4,8% or lower. This is an indicator.A recently released unemployment report shows a figure of 6%, bigger than what is expected. This figure impacts the assumptions of the Wall Streeters about the state of the economy. They will lower their predictions for economic improvements, which in turn will push investors to give up their long positions. Thus, the indicator is a catalyst of sell positions, which ends up with falling equity indices.



Conclusion



Wall Street remainsthe US’s financial centre. These institutions influence the nation’s economy, but their power extends beyond those few blocks to the global economic situation. The world’s economy can’t but respond to what happens on the Street in this or that way, for better or for worse.



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