Stocks on Monday suffered their biggest drop since November after a strong showing in Italian elections by groups opposed to the country’s economic reforms. Of course the markets are just confused for anyone who really thinks that Europe’s debt problems have been solved must be smoking something. This is nothing. Then we have the September elections in Germany. France is lashing out and has NO intention of reforming anything. So how can anyone in their right mind even think Europe will go away?
The selling accelerated late in the trading session after the S&P 500 fell below the 1,500 level. Effectively, Italy’s center-left coalition holds a slim lead over former Prime Minister Silvio Berlusconi’s center-right bloc in the election for the lower house of parliament. However, any government must also command a majority in the Senate, a race that is decided by region.This has resulted in gridlock within the Italian parliament that could lead to even new elections. Fears that this will call into question Italy’s ability to pay down its debt is at least on point. Yet, this applies to all of Europe.
Europe will no just go away as an issue. This is the 1000 pound gorilla that is here to stay. Nevertheless, the market will still eventually make new highs when capital shifts from Japan and Europe to America at an even faster pace. Welcome to the Sovereign Debt Crisis – you can check in, but you cannot check out.