U.S. stocks were on track to break a six-day losing streak Thursday, rallying despite a warning from Cisco (CSCO) and yet another round of grim news out of Europe.
"Perhaps the U.S. market is getting anesthetized to Europe because it has been a steady drip, drip of bad news," says Steven Rattner, chairman of Willett Advisors LLC, where he manages money for NY Mayor Mike Bloomberg.
Indeed, one could argue the big surprise is U.S. markets haven't fared worse this week, given the steady drumbeat of bad news from Europe. The Dow fell just 3.3% in its six-day slide and several days this week were notable for the market closing well off its intraday lows. European stocks have suffered greater losses and the euro fell to a 3-month low vs. the dollar this week; still, it remains well within the range of $1.27 to $1.35 that's been in place since December, The WSJ reports.
Some optimists are taking solace in the market's "resilience" to the bad news. Others view actions such as Spain nationalizing its third-largest bank as a sign policymakers are addressing the issues. Furthermore, comments from EU officials assuaged fears about Greece not getting the latest tranche of its bailout funds.
Still, "the situation in Europe is every bit as bad as it's been at any point during this crisis," Rattner says. "You have to worry about Greece...whether it leaves the euro and what happens there. You have to worry about Spain, which has full blown banking crisis. Ireland is doing better, [but] Portugal is a mess and France is veering off in a direction I don't think is particularly constructive." (He left out Italy but you get the gist.)
Rattner calls Sunday's election results "a quasi-disaster" for Europe. As discussed here Monday, conventional wisdom is that while Francois Hollande's victory over Nicolas Sarkozy is a concern, market participants don't believe the Socialist's campaign rhetoric will be matched by actions once in office. For markets, and Rattner concurs, the real concern is the Greek election results. "They don't have a government and can't form a government," he says. "The Greek situation truly is a catastrophe."
A new Bloomberg poll shows 57% of subscribers believe at least one country will leave the euro by year-end, with Greece by far the most likely candidate.
"I never believed it because leaving the eurozone would be an unmitigated disaster [for Greece] beyond anything anybody's asking them to do now," Rattner says. "But they don't seem to have the political fabric to do what they have to do to stay in. I would bet on them to be out" by year-end.
Predicting the outcome of the Greek crisis is "very speculative," he admits. Even more uncertain, however, is predicting what Greece's exit from the eurozone would mean for the common currency and the global financial markets more broadly.
As The FT's Martin Wolf is fond of saying, it's a lot easier to make an omelet than it is to break it up -- more especially with so many "cooks" in the EU's kitchen.
If, when and how Greece (or other nations) were to abandon the euro is the great uncertainty hanging over global markets. This week has brought that existential crisis much closer to reality, but market participants don't seem overly concerned, at least not yet.