Europe’s Debt Crisis Continues to Pound Domestic Investor Sentiment—Who Has the Power Now?

It’s not a good situation to have your own domestic investor sentiment strongly influenced by the reality in an economy that’s far away. The U.S. stock market is at the point now where it could be making real gains based on its own solid corporate fundamentals.The debt crisis in Europe continues to be a thorn in the side of domestic stock market investors and, to be very frank, the richer European countries are getting fed up with the less well managed countries that created the debt crisis on their own. From my perspective, I think that U.S. institutional stock market investors are attributing too much credence to Europe’s story—it’s a debt crisis that only Europeans can fix.

Nowadays, of course, financial markets trade on global news and sentiments and, because the American economy has been on the rails, institutional investors are now trading off of economic news from the debt crisis in Europe and China to a lesser extent.

Similar to the subprime mortgage crisis, the debt crisis in Europe is all about a lack of leadership from politicians. The party’s been going on for so long that no policymaker has had the strength to challenge the status quo with a real double-take on how poorly things have being run. Stock market risk in the U.S. is very high at this time because of the failure of European leaders to deal with a sovereign debt crisis that involves many of their member economies. Add in the fact that only a few euro member countries can be considered “wealthy” and an easygoing attitude towards entrepreneurship, worker productivity, and lifestyle; it’s not that hard to envision many of these countries spending beyond their means. Especially in the case of Greece, where not everyone pays their income taxes. (See The Cycle of Debt Must Be Broken for the Whole System to Correct Itself.)

So it’s a real mess and it’s fostering weak investor sentiment. The U.S. stock market has been very well valued for several quarters now and third-quarter earnings have been nothing short of great. We’ve seen real progress among industry laggards like the technology sector, and most visibility is solid. But, domestic investors have been beaten down hard since the subprime mortgage meltdown and the stock market’s outlook has been so reduced that all professional traders act on these days are debt crisis rumors and risks. It’s a frustrating environment for investors, businesses seeking capital, and workers alike.

I feel like the U.S. stock market is being held hostage by the sovereign debt crisis and the lack of decisive, unified leadership to deal with the problem. And here’s the pickle: I can’t see how domestic stock market investors will be able to move forward without Europe’s action on the matter.

It’s not a good situation to have your own domestic investor sentiment strongly influenced by the reality in an economy that’s far away. Europeans that I talk to want the situation dealt with so they can get back to concentrating on their food and lifestyle. Many don’t even think about the stock market at all.

The U.S. stock market is at the point now where it could be making real gains based on its own solid corporate fundamentals. I don’t know where Europe’s debt crisis is going to take us, but the economies in Europe are stalled, so they certainly can’t grow their way out of this problem. This, I fear, means that things are going to get even tighter in the future.