US STOCKS-Wall St tumbles as investors flee equities on Greek debt crisis

30 Jun 2015 | Author: | No comments yet »

Dow Drops 350 Points on Greek Drama.

The Dow Jones Industrial Average fell more than 350 points, erasing all of its gains for 2015, while the Standard & Poor’s 500 index suffered its biggest percentage point decline since April 2014, falling more than 2% as Greece’s debt crisis took an unexpected turn for the worse over the weekend.NEW YORK — Fears that Greece’s troubles could spread through the global financial system shook markets on Monday, driving U.S. stocks to their worst day of the year. The S&P 500 dropped 43.8 points, or 2.09%, and the Nasdaq dropped 122 points, or 2.4% to end the day at 4.958.47. “The market lost steam as the day went on, but the market was mostly orderly – there was no panic,” says Howard Silverblatt, the head index analyst at S&P Dow Jones Indices. “We’ll need to trade through the week – and then there will earnings.” As Greece leader Alexis Tsipras called for a referendum on Europe’s bailout plan, the debt laden nation shut down its banking system and imposed capital controls. In many ways, it looked similar to previous episodes in Europe’s long-running debt crisis, except that this time, investors said, they weren’t quite as worried.

Even so, Greece is a tiny economy and eventually the markets will be able to look through the uncertainty and realize that this is most likely an isolated case. However, we must recognize that while traders could take advantage of near-term dips, most equity markets are relatively expensive; a modest pullback probably doesn’t represent buying opportunities for longer-term investors. European officials refused to extend the country’s bailout program, which expires on Tuesday, the same day it’s supposed to make a debt payment to the International Monetary Fund.

Jeff Carbone, a senior partner at Cornerstone Financial Partners, said the real worry isn’t so much Greece, a country with an economy roughly the size of Missouri’s. “It’s the contagion risk. Pictures of long lines at bank machines in Athens appeared on television screens around the world. “Whenever you see any kind of bank line, there is in the back of investors’ mind the thought: ‘What if it spreads? What if people panic?'” said Karyn Cavanaugh, senior market strategist at Voya Investment Management. “What’s going on in Europe, of course it’s going to roil markets in the short term,” But for U.S. investors, she said, “the long-term impact is not that big of a deal.” The last time Greece’s troubles shook U.S. markets, there were plenty of other problems.

Back then, the fear was that a financial crisis would spread from Greece to the rest of Europe “because these economies were very fragile,” Cavanaugh said. The rating agency Standard & Poor’s said Monday that it interprets the Greek government’s decision to hold a referendum as a sign that it will put “domestic politics over financial and economic stability, commercial debt payments and eurozone membership.” The agency says it now sees a 50-percent chance of Greece dropping the currency. Things have changed since then. “Today, the European banks have shed much of their Greek debt and they have significantly increased their capital,” says Mark Zandi, chief economist at Moody’s Analytics. “A Greek default and exit from the euro zone would be devastating to Greece’s economy, but no one else’s. … The Greek standoff will be disconcerting to financial markets, but only temporarily.” The European Central Bank is also ready to swing into action to prevent a panic.

The ECB has already committed to buying 60 billion euros a month in corporate and government bonds to push down interest rates and help the European economy.

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