As market watchers assess the U.S. economy and investment performance at midyear, turmoil in Greece has roiled the domestic landscape and forced investors to seek safe havens while waiting to see how Europe's problems might affect portfolios here in the United States.
"Right now, more people are selling stocks than are buying. That could lead to a big correction, and we haven't had a 10% correction in three years," said Lance Roberts, chief portfolio strategist at Houston-based STA Wealth Management, in an interview on Monday.
Worldwide markets have bounced around precipitously since Monday, when Greece defaulted on a $1.7 billion rescue-program payment to the International Monetary Fund (IMF). In the United States, the Dow Jones industrial average was down 350 points by market close on Monday, lower by nearly 2%, at 17,596. But on Wednesday morning, the DJIA rose 112 points, or 0.6%, to 17,731. U.S. Treasuries rallied Monday, meanwhile, with the benchmark 10-year note's yield plunging to 2.33% from 2.49% on Friday. As of Wednesday morning, the 10-year was yielding 2.43%.
Bulls vs. Bears
Roberts believes that market bears currently have the advantage, and that wise investors should shore up their portfolios to weather the rest of 2015.
"There is a battle being waged between the bulls and the bears as prices have continued to deteriorate from early-year highs," he wrote in his blog on Monday, adding that longer-term investors should be more concerned where the market closes at the end of the week, when overall trends will become clearer.
One possible trend could be a major market correction if the complex collateralized debt obligations (CDOs) that European banks have bought to insure Greece's debt go into default. According to Roberts, Greece's refusal on Tuesday to make a loan repayment to the IMF for its current bailout package could trigger a CDO event that freezes the global credit markets, in the same way that the Lehman Brothers 2008 bankruptcy froze the markets.
"This isn't a Greece problem; this is a euro bank problem," he said. "The problem is that there have been so many bailouts in the U.S., Japan, and Europe, and so much liquidity in government-issued bonds has been absorbed by the central banks, that there is less ability now to absorb shocks."
SIFMA Sounds Off
But those in the know disagree whether global influences, good or bad, will truly have an impact on U.S. growth (and, by extension, U.S. portfolios) this year.
A Securities Industry and Financial Markets Association mid-year 2015 U.S. economic outlook released June 16 by SIFMA's advisory roundtable of bank economists shows that the most frequently cited upside risk, cited by roughly 25% of respondents, is the impact of the global economy. And yet the second most cited risk to the downside, at 20%, was also the impact of the global economy.
