The reaction from capital markets to the news that Greece is unlikely to make the payment due on Tuesday to the IMF was greeted with a sell off in equity prices, however so far maybe not quite as bad as many feared. Part of the explanation may be two fold, firstly the failure to pay the IMF is not being considered a default, and secondly the vote on Sunday, is felt to be a vote on the membership of the euro by Greece. Despite the many problems in Greece, Greek people seem in favor of staying within Europe and on that basis hopes are for a yes vote and the end to Mr. Tsprias. The yields on other peripheral bonds in Europe rose on Monday, but not in a manner that suggests investors see contagion as a risk.
The date most analysts are now focusing in on is the 20th of July, the date the Greek government needs to find 3bn euros to repay the ECB. Failure to pay that will be considered a default, and possibly a euro exit.
The FTSE 100 has fallen approximately 10% from its highs; the S&P 500 has corrected approximately 4%, to be now down on the year. The recent fall has reignited the debate as to the longevity of the bull market. We like several brokers have commented that should this bull market end, it will end under a different conditions to previous bull markets. An FT piece yesterday expressed the view that bull markets are not ended by events flagged months in advance, such as Greece and the immanent rise of US interest rates.
Bull markets tend not end at the start of the rate rise cycle, they also tend not to end when cash levels are high. In contrast they tend to end on a wave of euphoria and greed. The wall of worry has been ultimately climbed.
A lot of commentators take comfort from the existence of the “wall of worry”; US interest rates, China, Ukraine, Greece all contributing bricks to the wall, This is felt as a source of comfort that the bull market has not yet run its course.
Market bears could argue this time around that the existence of the wall of worry is itself cause for investors to become complacent. This time should one worry that markets could fall off the wall of worry?