Shaken by the prospect that the Greece rescue package might not be enough, and worried about Euro contagion as new concerns arose over Spain, investors sent the Dow down more than 245 points on Tuesday. The decline was spread across every major sector; overall, 96% of stocks took a tumble. The Nasdaq took an even steeper drop, falling 3%
So is this the start of something big? Probably not insofar as the economy’s prospects. But one thing we have learned about global financial markets is that they are tightly interconnected at moments of fear. As panicked European markets go over the near term, so will other major markets go too. However, once the dust settles there should be a more rational assessment of economic prospects. That bodes well for Asian markets; it leaves the U.S. market to reflect whatever happens with our economic recovery, not Europe’s.
As for Europe, we saw the tragic flaw (too much sovereign debt) and now we see the catastrophe (Greece, Spain, Portugal, etc). At some level there is recognition of what must be done to fix the problem but it is so severe that few believe it can really happen. What’s happening in the Greek stock market could be cathartic, but to me it just looks ugly.