After rattling global markets last week, China and Greece have receded from the financial headlines -- at least for the moment. This pause provides an opportunity to assess the potential implications of all the drama, both in the present and going forward.
In a recent report, Liz Ann Sonders, chief investment strategist at Charles Schwab, broke the potential "contagion" risks into four categories: market, financial, economic and confidence.
The first two (market and financial) she describes as "limited", the third (economic) not insignificant -- particularly for commodities -- and the fourth (confidence) being the hardest to measure but potentially the most important.
China's unprecedented and heavy-handed response to the popping of its local stock market bubble, particularly, raises "the risk that the perception of central bank/government omnipotence is a fallacy," Sonders writes. "The contagion of China's market rout may be technically limited...but it brings up the broader risk about the market's natural forces and policymakers' inability to direct markets to do exactly what they want."
This issue has additional resonance as market participants keep a close watch on Fed Chair Janet Yellen's Congressional testimony this week and European policymakers continue to grope for a "solution" to the Greek financial crisis, as Sonders and I discuss in the accompanying video (taped ahead of Yellen's appearance).
"There's a perception by many that central bankers have the levers to pull to ease any kind of monetary or economic or even market crisis; I don't think that's the way we should think about central bank policy," she says. "If there is this reception of [policymakers'] omnipotence it's going to be disappointed at some point."
Sonders is actually hoping for a 10% correction -- "I think it would be healthy, she says" -- but is "far from bearish" on the U.S. market. A big U2 fan, she describes 2015 as the year of "running to stand still" and believes the year-to-date pattern of "a lot of gyrations around flat performance" will be with us, at least for the near term.
"We're in a secular bull market" but this is "a period of pause" for earnings to catch up to valuations, she says. "We came into this year thinking it would be more difficult year and it certainly has been."
Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at email@example.com.