How News Liftsor SinksShares around the WorldThe growth of computerized trading has closely connected the stock markets in all the developed nations and many developing nations. Traders react quickly to government and business news, especially from the major economies. For example, when U.S. President Donald Trump announced in November 2018 that talks to end a tariff war with China were going well, stock markets around the world reacted positively, especially in Asia. Japan's Nikkei index and China's Shanghai Composite both rose about 2.5 percent. But a month later, when Trump said that a deal with China could fall through, the stock markets took the news hard. The Dow Jones industrial average dropped 3.1 percent, while the NASDAQ fell 3.8 percent.

Also in November 2018, a series of setbacks to Britain's withdrawal from the European Union sent stock markets around the world into turmoil. After Prime Minister Theresa May failed to get approval from Parliament for a deal to leave the EU, several members of her cabinet resigned, sending stocks plunging. They then rallied by the end of the day to eke out very modest gains. The London Stock Exchange's FTSE 100 stock index was up just 0.1 percent, while the Dow Jones rose 0.5 percent. News from big companies can also affect stock markets. In early 2019, Apple Computer forecast falling revenues for the first time in 16 years after disappointing sales of iPhones in China. As a result, Apple shares fell 9 percent in value, which caused traders to sell off other U.S. shares, especially in the tech industry, amid a pessimistic outlook for the Chinese and global economies. The NASDAQ Composite,which has many high tech shares, fell 2.4 percent, and the Standard and Poor's 500 benchmark was down 2.0 percent.

Questions for discussion: 1. Are traders overreacting when they sell off large numbers of shares based on bad news? Why or why not? 2. How much of an impact does economic news from Canada have on world markets? 3. What factors should traders consider when determining how permanent a market disruption likely is?

Answer rating: 100% (QA)

1 Traders may not necessarily be overreacting when they sell off large numbers of shares based on ba... View the full answer