Dow average shoots up after Europeans agree on Greece debt plan
The Dow average was up by more than 340 points as of early Monday afternoon. Investors were relieved to see European leaders agree on a Greece debt plan.
Investors are relieved to see European leaders agree on a $1 trillion financial stability plan that appears to give European debt-laden nations, such as Greece and Portugal, time to get their finances in order.Skip to next paragraph
Subscribe Today to the Monitor
Wall Street’s initial enthusiasm for the Greece debt plan translated into a major rally on Monday morning when the Standard & Poor’s 500 index and the Nasdaq index gained more than 4 percent. The Dow Jones Industrial Average had popped by more than 340 points as of early Monday afternoon.
“Investors sold last week because they felt the European Union was too far behind the curve on fixing their problem,” says Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research in New York. “They assumed the worst, but now investors are pleased we are possibly ahead of the curve.”
Concerns had mounted last week that the debt problems in Europe might spill over to world markets – similar to how the US subprime crisis froze the world’s credit markets in 2008. “We were worried about a cascading effect,” Mr. Stovall says.
But it isn’t certain that problems in the financial markets would have an actual effect in the United States. Exports represent only 11 percent of US gross domestic product, and only 20 percent of that goes to Europe.
“You weren’t going to lose the whole $200 billion in exports. Even in a depression, you were looking at losing maybe 50 percent,” says Jay Bryson, international economist at Wells Fargo Economics in Charlotte, N.C. “The real potential was for a financial crisis, and it looks as if a credit crunch has been averted for now.”
However, some commentators think Wall Street is celebrating too soon.