Russell Investments\u2019 Chief Investment officer \u2013 Client Investment Strategies Erik Ristuben explains why the European sovereign debt crisis is spilling over into France\n<\/p>\n
\nVolatility has and will continue to be a constant companion in this market environment. We were reminded again of that fact today as we watched the Dow drop 520 points, its ninthworse point loss on record, in a market sell-off that effectively erased the gains made on
\nTuesday.<\/p>\n
Whereas early-week volatility was based on concerns about the U.S. economy and the mostly psychological impact of the S&P downgrade, Wednesday\u2019s drop is the result of the feared contagion effect of the European sovereign debt crisis. The crisis has moved from country to
\ncountry \u2013 hitting the banking system in Italy, Greece and Spain. It\u2019s also spilling over into the relatively more stable French and German systems given fears about exposure to shaky European debt. Today it was France\u2019s turn in the chute.<\/p>\n
France was singled out given talk that it could potentially be the next in line (following the U.S.) for a downgrade of its AAA credit rating, and because of swirling rumors about individual banks and their solvency. The market zeroed in on the fact that France has a strong trade relationship with Italy, and French banks own a good amount of Italian debt. France\u2019s stock market absorbed the impact of these concerns, causing it to close down five percent.<\/p>\n
The market\u2019s focus on France is indicative of the fact that investors are beginning to pile pressure on Europe. In investors\u2019 eyes, no market or country is completely safe, and they are making that view known. At some point this pressure, we believe, will create enough incentive
\nfor core Europe to address the fundamental solvency problem and stabilize the banking system by making the politically unpopular decision to \u201cwrite a check\u201d to aid peripheral Europe. Until that is done, capital flight, particularly to the U.S., will continue to be a big risk for core Europe.<\/p>\n
WE EXPECT CORE EUROPE TO RESPOND, BUT IT MIGHT BE A PAINFUL PROCESS TO WATCH PLAY OUT<\/strong><\/p>\n Despite the angst induced by the U.S. debt ceiling debate, a deal was reached. I have the same expectations for Europe, and I do believe that the resolution we\u2019ve all been waiting for will come, as Europe has already done what\u2019s necessary to avoid outright government defaults, As for the U.S. banking system, the market has been pummeling financials, but Russell\u2019s view is that the banking system is not in the same precarious situation that it was in 2008. The system is now better capitalized, much less levered and more transparent. We can actually see this reflected in the way that the market is differentiating between bank stocks and pricing accordingly.<\/p>\n Right now, this issue is in the hands of European political leaders, but we believe that they will do what is necessary.<\/p>\n U.S. ECONOMY, WHILE FRAGILE, IS STANDING ON A NUMBER OF STRONG PILLARS<\/strong><\/p>\n As for the U.S. economy, the recovery is at a fragile point, but the Federal Reserve has made a strong commitment to stimulating growth \u2013 and they will do more, if necessary. Stock fundamentals are strong, business spending is solid, commodity-based inflation has been A bright spot worth calling attention to is the U.S. tech sector, which has held up reasonably well during the dramatic market sell-offs we\u2019ve seen this week. Specifically, Apple Inc. has overtaken Exxon Mobil Corp. as the \u201cworld\u2019s most valuable company,\u201d passing Exxon for the Russell Investments\u2019 Chief Investment officer \u2013 Client Investment Strategies Erik Ristuben explains why the European sovereign debt crisis is spilling over into France<\/p>\n","protected":false},"author":1,"featured_media":19779,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1480],"tags":[1655,1856,1782,1858,1859,2073,1876,1854,1836,1681,1943,1676,1651],"_links":{"self":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19781"}],"collection":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/comments?post=19781"}],"version-history":[{"count":0,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/posts\/19781\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media\/19779"}],"wp:attachment":[{"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/media?parent=19781"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/categories?post=19781"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/beta.next-finance.net\/en\/wp-json\/wp\/v2\/tags?post=19781"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nalbeit the bare minimum. This will continue to be a very painful process to watch play out. In the end, core Europe will \u201cwrite the check,\u201d holders of peripheral European sovereign bonds will likely have to take a haircut, and peripheral European countries will have to live within their means, but it\u2019s good to see that some of these countries have already made pretty significant strides in enacting austerity measures.<\/p>\n
\nreduced, the supply chain disruption in Japan is ending and consumers have more money in their pockets.<\/p>\n
\nfirst time in intraday trading on Aug. 9. This is one notable example of how many companies \u2013 particularly in the tech sector \u2013 are posting solid business results and holding strong balance sheets chock full of cash \u2013 definitely good news. We\u2019ll take it.<\/p>\n","protected":false},"excerpt":{"rendered":"