Many observers thought that the economic and financial trouble in Europe was a thing of the past.
But just as we have learned so many times, this is the slow-burn crisis that always seems to come back. European policymakers can come up with band-aid bailouts, but those don’t solve the underlying, fundamental problems that exist in Europe. The European economy is in a depression, much of the European Union is in deep, unsustainable and, in some cases, unservicable debt. Bailouts won’t fix the breakdown and Wall Street knows that the trouble isn’t going away any time soon. In fact, the reason Wall Street sold off sharply today is that they know that in today’s interconnected world in which money flows at the speed of light, the crisis in Europe will be exceedingly difficult to contain.
As a result, with bad news coming from Spain today, the US stock market sold off sharply across the board.
The Dow fell 112 points, or 0.86%, to 12832, the S&P 500 dipped 11.9 points, or 0.87%, to 1365 and the Nasdaq Composite slumped 33.7 points, or 1.1%, to 2932. The US indexes were just following the example set overnight in Asia and Europe, where stock markets took even steeper dives. The Euro Stoxx 50 sunk 2.8% to 2237, the English FTSE 100 dipped 1.1% to 5652 and the German DAX slumped 1.9% to 6730. The Japanese Nikkei 225 sold off by 1.4% to 8670.
Readers may recall that early on in the European crisis bad news in Europe usually meant lower gold prices as investors liquidated gold to cover losses in other assets. Those days appear to have passed. While world stock markets were tumbling, gold was up over $2 per ounce, demonstrating gold’s role as an excellent diversifying asset for a balanced portfolio.