All In One Brexit’s Financial Global Effects and the DOW and the S&P 500: ©Natalie Keshing
With Brexit, British voters decided to jump ship. There was probably a good many who didn’t anticipate the complete financial fall-out and the effects on the global economy. But we’ve already jumped ship and when they jumped, we had no choice but to follow right afterward. Now it’s time to sink or swim above the high-water of hopefully not a more depressing world economy. We still can’t predict the entire Brexit domino effect; because that’s on-going and hasn’t quite hit home as they say. But you can bet there are economists and financial wizards watching the flow of money, investments, trade deals, large banks and large companies watching just as closely.
The immediate consequences were dramatic: Markets tumbled, the pound plummeted and big banks in the U.K. announced plans to relocate somewhere on the continent. They called it a financial flesh wound, signs that it has become infected are beginning to show.
“On Tuesday, the International Monetary Fund slashed its forecast for the U.K.’s economic growth, adding that the Brexit referendum had “thrown a spanner in the works” of the global economy.”
“The first half of 2016 revealed some promising signs ― for example, stronger than expected growth in the Euro area and Japan, as well as a partial recovery in commodity prices that helped several emerging and developing economies,” Maurice Obstfeld, the IMF’s chief economist, said at a press conference in Washington, D.C. “As of June 22 [the day before the vote], we were therefore prepared to upgrade our 2016-17 global growth projections slightly. But Brexit has thrown a spanner in the works.”
The financial formula for the world economy had at long last stabilized and projections significantly on the more positive side were on the rise globally. Yet there were those in Greece and Puerto Rico who had more to worry about to stay afloat than the rest of us in this behemoth financial economy so interdependent on each other globally. ©Natalie Keshing
“The IMF expects global growth to slow to 3.1 percent this year, and 3.4 percent next year. Both predictions, The Guardian noted, are 0.1 points lower than the organization’s April forecast.” These projections reflect the world in April, it is now July 20th and those projections were based on the financial stability before Brexit. As they say, try to read between the lines and projections. ©Natalie Keshing
While small, the downgrade threatens to create more volatility and instability, creating a ripple effect that could damage national economies.
“In the U.K. it’s a huge deal,” Obstfeld said on Bloomberg TV after the announcement. “For Europe, especially those countries that trade heavily with the U.K., it’s significant.”
So here we see Domino 1 – Brexit toppling down Domino 2 – France, Domino 3 – Italy, and so on and so forth. Get the picture?
The downgrade also demonstrates the vulnerability of the global economy to the actions of a single country.
“Here the journalist is referring to the United States and it’s effect on the global economy after the Presidential Election and inauguration on January 21st, 2017.”©Natalie Keshing
“If, say, Donald Trump ― the bombastic anti-trade Republican presidential candidate who has aligned himself with the Brexit movement ― wins in November, that could further damage global growth.”
To correct this statement, Donald Trump did not say he is anti-trade. He said he is in favor of good trade deals. I would like to maintain a more positive and hopeful opinion that future trade agreements for both countries can agree upon and negotiate better trade deals between two financial entities. ©Natalie Keshing
Still, Obstfeld noted that the 0.1 percent downgrade of the annual global growth forecast is based on data collected less than four weeks after the vote.
“I referred to that exact same conclusion, it’s still much too early to predict. Though a new President for the United States and his new economic policies has to be closely monitored. There is no doubt that if Mr. Donald Trump wins, he is prepared to make the necessary changes to start getting out of debt and as he said to collaborate and improve better trade agreements for the United States.” ©Natalie Keshing
“It may be more of a moderate effect,” Obstfeld said of the Brexit’s long-term impact on the world economy.
It’s still unclear how strongly people in the U.S. will feel the Brexit’s ripple.
Forbes has predicted that the U.S. economy will be fine, but that consumer confidence will take a hit. The Wall Street Journal offers a more dire forecast, warning that Brexit will “rattle” the American economy and “weaken U.S. diplomatic leverage in Europe and upend the corporate strategies of U.S. companies based in London.” CNBC noted that the U.S. could suffer a drop in foreign direct investment now that the U.K., its biggest investor, is in turmoil.
Tim Worstall, Contributor to Forbes said, “People think that things are going to be good and they are – people filled with the gloom will end up with a gloomy and quite possibly shrinking economy. There’s not a great deal we can do about this other than recognize it. That recognition giving us another one of those clues as to why planned economies don’t work. How can you plan when the outcome is so dependent upon whether people are feeling cheerful or not?”
In this case we can say that stock brokers have their very good days based on their personal lives and agendas. Then the momentum spreads through fiber optics onto the computer servers keeping up with the calculus and the positive outcome projections and ‘VOILA’. It’s been a good day for the DOW and the S&P 500. ©Natalie Keshing
Another scenario, two major companies, say those rich pharmaceutical companies getting richer on their astronomical prices compared to the companies who are offering a generic brand, start to see their projections affected by the generic pharmaceutical companies. You have major investors from all parts of the world and this is affecting the calculus formula equations therefore affecting the moods of stock brokers and their investors and suddenly the momentum appears to be sluggish and digital currency is dropping, disappearing into thin air. Those digital currency numbers on the hanging screens at Wall Street, exchanging, dealing, swapping, and trading the name of the game for movers and shakers. ©Natalie Keshing
This next part is my favorite: ©Natalie Keshing
The major difference between these two indexes is that the Dow Jones Industrial Average (DJIA) includes a price-weighted average of 30 stocks whereas the Standard & Poor’s 500 (S&P 500) is a market value-weighted index of 500 stocks. The editors of the Wall Street Journal, which is owned by Dow Jones & Co, pick the stocks comprising the DJIA, while an S&P committee picks the 500 stocks in the S&P 500. (See Calculating The Dow Jones Industrial Average.)
The Dow is comprised of 30 of the largest companies in the U.S. across a range of industries except for transport and utilities. The criteria for a company to get on the Dow is vague (?) (perhaps more subjective criteria then objective); the companies are leaders in their industry and very large. The components in the DJIA do not change often as it takes an important change in a company for it to be removed from the index (possibly Brexit’s Financial Effects?), and if the index comes up for review, the Wall Street Journal editors often replace more than one company at a time. Maybe the reason for that is that if they are going to make and reflect a change this one company can affect a few more in the financial currency pyramid. ©Natalie Keshing
The S&P 500 is comprised of 500 large companies from a vast number of industries, picked based on the following criteria:
1. Market capitalization of more than $5 billion
2. Four consecutive quarters of profit determined by net income less discontinued operations and extraordinary items
3. Adequate liquidity measured by price and volume (annual dollar value traded to market cap should be at least 0.3)
4. Public float of at least 50%
The S&P 500 strives to represent all of the stocks over $5 billion by making sure the index closely matches the sector weighting that is seen in all stocks above $5 billion. For example if 20% of stocks with a market cap of over $5 billion are technology companies, the S&P 500 would try and have a technology weighting of around 20%. The S&P 500 will only include companies it determines to be operating, excluding such things as closed-end funds, holding companies, partnership and royalty trusts.
Both of these measurements are used by investors to determine the general trend of the U.S. stock market. However, the S&P 500 is more encompassing as it includes a greater sample of total U.S. stocks and because the S&P 500 is market-value weighted, it attempts to ensure that a 10% change in a $20 stock will affect the index like a 10% change in a $50 stock. The DJIA, on the other hand, is price-weighted, which means the average is affected considerably more by the large stocks within its portfolio.
Read more: What’s the difference between the Dow Jones Industrial Average and the S&P 500? | Investopedia http://www.investopedia.com/ask/answers/130.asp#ixzz4EyuXGvk3
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1. 30 North American stocks picked by the Wall Street Journal
2. Calculated through a method of simple mathematical averages
3. Higher-priced stocks affect the average more than lower-priced ones.
1. 500 North American stocks picked by an S&P board
2. A wider range of sector representation
3. Calculated by giving weights to each stock according to their market value
4. Regardless of stock price, a percentage change will be reflected the same on the index.
Read more: What’s the difference between the Dow Jones Industrial Average and the S&P 500? | Investopedia http://www.investopedia.com/ask/answers/130.asp#ixzz4Eyv9BZVM
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©Natalie Keshing Editor-in-Chief of NatsWritings.com or NatalieKeshing.com
Natalie has a B.S. Computer Science and Math.
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