Stubborn Stock Market Volatility Vexes Investors

Wednesday, 16 Nov 2011 12:07 AM

By Dan Weil

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Europe’s debt crisis has been wreaking havoc through financial markets for about 18 months, and that havoc is making it difficult for investors to figure out what to do.

Just since the beginning of August, the Standard & Poor’s 500 Index has dropped 17 percent and then rebounded 16 percent.

Market sentiment seems to change daily based on whether Europe appears to be getting its act together. For now the change of governments in Greece and Italy seems to have quelled market fears.

nysetraders200gtty.jpg
NYSE floor traders
(Getty Images photo)
But political uncertainty and weak economies in the U.S. and Europe don’t leave investors with attractive options, Ethan Harris, co-head of global economics at Bank of America, tells The Wall Street Journal.

Investors can go for safety and get stuck with near zero yields. Or they can opt for stocks, which now offer potentially high rewards, but high risks as well with the European crisis continuing to fester.

"Investors have to understand that this is an environment where there is no high-return, low-risk investment," Harris says.

And investors can likely look forward to continued volatility in financial markets, as Europe’s woes aren’t going away anytime soon. There are now signs that the crisis is spreading to infect France’s economy and financial system.

The eurozone has no way to coordinate fiscal policy, and the European Central Bank has proven unwilling to bail out European governments. That means no end to the crisis is in sight.



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