Exports Key To Stock Market's Impact On Indiana Companies

While the stock market decline itself likely won’t have major consequences for Indiana-based companies, the fears behind the drop, namely a concern about global economic growth, could affect companies that rely heavily on exports.

As of noon Monday, all but one of the Indiana-based Fortune 500 companies had seen a 5 percent or more drop in their stock prices since Wednesday. Eli Lilly’s stock had dropped about 2 percent.

Analysts say the stock market decline, which included a 531-point drop in the Dow Jones industrial average on Friday, is likely a market correction. The stock market is coming off six years of largely uninterrupted gains.

The drop is also being attributed to fears surrounding global markets, including a decline in the Chinese economy and a weakening of the U.S. dollar.

So what does this mean for Indiana companies?

“If you’ve got an Indiana-based company that has a large export sector, that is going to be a concern,” says IUPUI Kelley School of Business associate professor Robert Neal.

Columbus-based Cummins, for example, relies heavily on exports.

Other companies like Eli Lilly might not see as much of a hit because, even in the midst of economic downturns, people still buy medication.

Neal adds, though, that companies vulnerable to global markets have learned to insulate themselves through various means.

“They’re aware of the financial risks out there in the market and they try to protect against those,” Neal says. “They can do that by engaging in financial hedges that protect themselves from an adverse movement in currencies. There are also a number of things they can do in terms of where they locate their production facilities.”

Another major factor is how long the downturn will last. By early in the day Monday, stock prices were already rising.

If the prices stop falling, companies will be able to quickly readjust. But there is an alternative.

“If they think it’s permanent, it will impact investment and employment,” says Charles Trzcinka, an IU Kelley School of Business finance professor, noting that right now Indiana is experiencing an all-time high in employment at more than 2.6 million private jobs.

But Trzcinka also points out that employment is typically that last thing companies cut, after capital and other expenditures, so it’s likely top company officials who often get paid through their own company’s stock will take the biggest hit.

But the long-term consequences, both domestically and on the global stage, remain to be seen. In the meantime, Trzcinka gives Hoosiers this advice:

“Don’t watch the market so closely,” he says. “These things are driven by waves of panic and fear and frankly the averages over time make sense.”