Why European Crisis Fears Slammed U.S. Stocks

The explosive moves in the stock market recently are testing the
resolve of investors worldwide, and today there was no relief. The Dow
Jones Industrial Average fell 389 points, or 3.2% to 11,781, the Nasdaq
fell 3.88% to 2,622, and the S&P 500 fell 3.67% to 1,229.

The market opened lower this morning on concerns out of Italy and
whether Prime Minister Silvio Berlusconi would truly resign his post due
to his failure to stem the country's debt crisis. As a response,
Italian bond yields soared to crisis levels, rising above 7%. Later in
the afternoon new details emerged
that European officials are reportedly considering an overhaul of the
European Union we've come to know. When leaders like German Chancellor
Angela Merkel and French President Nicolas Sarkozy express ideas of
potentially reorganizing the make-up of the EU, the world must listen
closely.

Add it all up, and our market's response today is quite rational,
while the world is rather chaotic. The stock market is just trying to
keep up with it. Investors may not like it, but anyone that cares about
their financial well-being must pay attention to the situation in
Europe.

The butterfly effect of global markets

Whether it's kids swapping baseball cards or General Motors (GM)
buying a million tons of steel, all trading is based on a common set of
rules. Right now Europe has no real set of rules. As a result, German
multi-nationals can't do business with other companies because nobody
involved knows the rules. With little kids that means a fight and some
tears. With GM and Mercedes Benz it means billions and billions of
dollars in trades that never happen.



We're seeing the beginnings of a global economic seizure already.
Germany is on the cusp of, if not already in a recession. Italy can't
issue bonds without paying yields normally reserved for third world
nations. Just today Italian bond yields hit crisis levels rising above
7%. None of these things can be stopped without someone stepping in and
laying out a plan of action for the European Union.

Without a plan, even a flawed plan, Europe will simply close for
business on an International basis. If and when that happens, the whole
world will freeze right along with it. The deeper we go into this
disruption, the lower corporate earnings throughout the world will be.
The lower the profits, the fewer the jobs, until no company on earth can
predict with any certainty what their business will look like tomorrow.

The threat of such an outcome is very real and extremely scary. Tens
of millions of jobs are at stake. The fate of the financial world as we
know it hangs in the balance, and traders are going to bed every night
wondering if the head of France will still be in power in the morning.

It's ugly and it's real. Not all fears are irrational. Sometimes
there's a monster under the bed and a boogeyman in the closet. This is
one of those times.

That's why the market is so volatile and that's why it matters whether you own stocks or not.
Source: http://finance.yahoo.com/blogs/breakout/european-crisis-fears-sink-u-stocks-212918039.html