Week 31, 2011: The Stock Market

Summary: Stock markets around the world have dropped sharply over the past week, presumably in response to global fear of events in the US and Europe.

What does the chart show? The chart shows a sample of four stock market indices (measures of the prices of stocks in a selected group of companies), all rebased so that the 3rd of May 2011 is equal to 100 (this makes it easier to compare across different stock markets). The blue line is the FTSE 100, a compilation of the largest 100 stocks in the UK. The red line is the Dow Jones Composite Average, which includes 65 US companies divided across the industry, transport and utilities sectors. The yellow line is the S&P 500, a collection of 500 companies which is said to represent over 70% of all US equity. Finally, the green line is the Nikkei 300, a measure of the top 300 companies from the Tokyo Stock Exchange.

Why is the chart interesting? The big stories this week have been the US debt negotiations and the threat of a deepening crisis in the Eurozone, and these have had ramifications in the global stock markets. All have dropped significantly over the past couple of weeks, with the fall in the past few days being particularly sharp. It appears that the Nikkei 300 index has not been as badly affected, but that is partly because its starting point at the beginning of May was already quite low.

As the US debt negotiations were resolved before crisis struck, presumably the major factor in the continuing decline in stock prices is the performance of the Eurozone. This shows just how interconnected the world economy has become; the FTSE is the only European stock index in the chart (and is based outside the Eurozone).