Greek Worries Weigh on Markets: 4 Actions for Investors

KALAMAZOO, Mich. - July 7, 2015 - PRLog -- Greece continues to take center stage for the global markets, with developments over the weekend sending U.S. stocks lower on Monday. Greeks voted on Sunday to reject a new bailout deal from European creditors, raising uncertainties around a Greek default and potential exit from the European Union. The ultimate outcome is unclear, but market volatility is likely to remain elevated as the situation unfolds. In our view, the bull market isn't exhausted, but it is now more than six years old and the path ahead may not be as smooth. Regardless of the market's next move, stay focused on keeping your portfolio on track toward your long-term goals.

What's Going on in Greece?

•  The bailout funds that Greece received several years ago are coming due, and the Greek government is seeking new rescue funds.

•  In Sunday's referendum vote, the Greek people rejected an approach to implement further spending, tax and pension reforms in order to secure new funding from European lenders.

•  Negotiations among eurozone leaders to reach some sort of a deal will continue in the coming days. Banks in Greece remain closed and ATM withdrawals continue to be capped. Without new financing, Greek banks face risks of running out of cash.

•  A bailout deal is still possible, but the risk of a Greek exit from the eurozone has risen. With no blueprint for such an exit, uncertainties and news out of Europe will keep markets on edge.

3 Key Takeaways

1.  Uncertainty has risen, and markets hate uncertainty. While we don't think the situation will lead to the most adverse outcome - a fracturing of the euro currency union and a deep recession across Europe - we don't expect these risks to be quickly or easily dismissed. Markets are likely to remain volatile in the days and weeks ahead.

2.  This isn't a repeat of 2011. In 2011, global markets dropped sharply over concerns that debt troubles in Greece, Spain, Italy, Portugal and Ireland could cause the eurozone to break apart. While Greece's situation hasn't improved, other European economies are doing better. Even if Greece defaults and leaves eurozone, we doubt the other countries will follow. In 2011, fears were that the European banks would suffer crippling losses on their Greek bonds. Today, the European Central Bank and the International Monetary Fund (IMF) are holding much more of the Greek debt, lessening the threat to the euro banking system.

3.  The broader economic backdrop doesn't change. Greece represents roughly 0.3% of the global economy. So while its share of the headlines is large, its economic impact is minimal. The rest of the eurozone economy has been improving recently, and U.S. growth is regaining momentum. Greece will impact the markets in the very near term, but we don't believe it alters the positive fundamentals of economic and earnings growth.

Actions for Investors

•  Don't panic. It's been nearly four years since the last market correction, so market turbulence may feel a bit unsettling. Emotional reactions can be at odds with your long-term strategy, so keep things in perspective. It's unlikely that the turmoil in Greece has changed your financial goals. Make sure your strategy and your portfolio are guided by your long-term investing goals, not short-term challenges.

•  Review your goals and risk tolerance. Revisit your long-term goals and your comfort level with risk, and then compare that to your portfolio to ensure they are all aligned. It's important to set appropriate expectations for market volatility and how your portfolio can perform over time.

•  Ready your portfolio for more volatility by rebalancing. Low interest rates and strong market gains in recent years may mean your allocations to stocks and bonds have shifted from your intended mix, and you may need to rebalance your portfolio. If you have too much in stocks, consider adding bonds to help reduce risk and fluctuations in your portfolio. This can put you in a better position to weather the Greek-driven volatility.

•  Be opportunistic. We view these short-term pullbacks as an opportunity to consider adding stocks. During a growing economy and rising corporate profits, market dips offer opportunities for investors who are prepared to capitalize on them.

Craig Fehr, CFA
Investment Strategist

You should understand the risks involved in owning investments, including interest rate risk, credit risk and market risk. The value of your investments fluctuates, and you can lose some or all of your money.