Analysis: European elections signal end to market calm

Wed May 9, 2012 5:34pm EDT
 
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By Edward Krudy

NEW YORK (Reuters) - Elections in Greece and France over the weekend have ushered in a new period of uncertainty for financial markets that could stand in the way of the easy-money rally that boosted stocks at the start of the year.

For U.S. investors, it means a return to the volatile period that dominated the better part of last summer and fall, when fund managers scrambled to stay ahead of developments in Europe's debt crisis.

Now, just two days after voters in Greece and France chose candidates that rejected the austerity measures imposed to rein in Europe's debt crisis, markets are already swinging with the shifting political tides.

After largely taking the election results in stride on Monday, stocks and the euro fell on Tuesday as concern heightened over whether a new government in Greece will maintain a commitment to the country's bailout pledges.

And with more votes expected in Greece and other nations, the day-to-day anxiety is expected to rise.

"This really just prolongs the possibility of recovery because now there is going to be a political debate about what's the best way to proceed," said David Joy, chief market strategist at Ameriprise Financial in Boston.

Joy has cut back positions in economically sensitive stocks over the last two months as U.S. economic data showed signs of softening. Events in Europe are another reason for caution.

In Greece, a radically altered and highly fractured parliament is struggling to build a coalition, with fresh elections to come if it fails.   Continued...