Time to Look Past the Greek Debt Crisis

While the financial media noise and nervousness increases over the Greek debt crisis, investors would be wise to keep an eye on the big picture of fundamentals and the long-term investment horizon.

In Monday’s aftermath of digesting the news of the “No” vote on a Greek debt deal, the markets didn’t exactly go into panic mode. Yes, the U.S. stock markets closed modestly lower, but the major market indexes ended up above their intraday lows. Also, the euro declined a bit in value, oil prices skidded lower and European stock markets pulled back, with those of debt-burdened Mediterranean countries getting it worst.

But the response from capital markets Monday was nowhere near a “Lehman Brothers moment” comparable to the 2008 bank collapse and subsequent market selloff. It is highly possible that the broad stock market indexes have already priced in an impending Greek tragedy, or even that stocks may even be oversold at this point.

In another Wyatt Research article, Stephen Mauzy notes, “Greece is a mere bit player on the world stage, with annual gross domestic product just north of $241 billion. In comparison, the United States’ annual GDP is $17 trillion, China’s is $9 trillion, Germany’s is $4 trillion.”

Investors Are Smart to Look Beyond the Greek Debt Crisis

Have you seen any news on the upcoming unofficial start of earnings season?
This week we’ll hear from Alcoa (NYSE: AA), PepsiCo (NYSE: PEP) and Walgreens (NASDAQ: WBA). The short-term direction of the stock market will be more affected by fundamentals on corporate earnings than by that distraction called the Greek debt crisis. And the long-term effects of Greece’s financial stability, and its impact on the eurozone and beyond, will likely be near-zero for the average investor.
As I noted in my recent Wyatt article:

The Greek debt crisis has been around since 2009, when the worst of the Great Recession was being felt around the world. But economies in the U.S. and abroad have generally strengthened, and investors have mostly been rewarded in recent years for ignoring the ongoing and often contentious talks between Greek leaders and the European creditors.
While things can certainly get worse with the Greek debt crisis – and intermittent volatility in stock prices is expected at a minimum as the saga unfolds – the best bet for investors is to stick with the simplicity and power of a diversified portfolio and to maintain a long-term perspective.

In a story published Monday by Morningstar, contributing author Karen Anderson noted: “Whether or not Greece exits the eurozone, the impact on mutual funds will likely be contained. Few fund managers own Greek bonds or equities in their portfolios.”
With more specific regard to bond funds, Anderson went on to comment, “Recently just 7% of U.S.-sold open-end taxable-bond funds had exposure to Greece, mostly world-bond funds, and the average stake was a scant 0.3%.”

Bottom Line

The current clamor over Greece’s impact on capital markets, while a legitimate concern, is not a prudent focus for investors. If markets move significantly lower from here in the short term it will likely be due to lower corporate earnings here in the U.S., not because of Greece.
As for long-term investors, nothing in the short term – other than poor investment decisions – will significantly impact their portfolios.

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