Why Does Europe Affect U.S. Stocks?

It is almost like clockwork – head to CNNMoney. Bloomberg. or Marketwatch and you’ll see, every morning before the stock market opens, that U.S. stock futures will either advance or retreat based on some sort of news out of Europe.

After a while, you have to sit there and wonder, “Why in the world do newspaper headlines in Europe have anything to do with my stocks?”

I don’t blame you. I’ve been wondering the exact same thing.

So I researched, researched, and researched some more, not just to satisfy my own curiosity, but to bestow this information upon my readers out there.

Let’s break it down piece by piece.

Europe is one of the United States’ largest trading partners – that’s for certain. When Europe is weak, our businesses will lose one of their biggest receivers of exports, and then jobs will take a major hit. Even though unemployment levels are fairly low given where they’ve been in the past, if Europe isn’t buyin’ what we’re sellin’, we’ll have some major issues on our hands.

Also, take into consideration that Greece, France, Germany, Spain and Italy are five of the countries in the eurozone that are dominating the headlines of the debt crisis. These are also five countries to which the United States has given billions of dollars in loans. and from which is still awaiting payback We’re talking about $300 billion each to France and Germany, and $50 billion to Italy and Spain.

Winning the Mega Millions would have only scratched that surface. If these countries default on their loans, you could bank on investments in the United States taking a dip.

I know what you’re asking yourself, and the answer is “Yes, that pun was most definitely intended.”

Diving into the research for this article, I thought one of the most interesting connections was how the eurozone debt crisis could impact the stock markets via the 2012 U.S. presidential election. What could possibly, and I stress possibly, happen is that potential voters could place the blame for the eurozone debt crisis on the current administration.

After that, it’s a trickle down effect.

If the current administration is replaced, then investors could shy away from investing because of concerns surrounding a new administration taking office.

If the current administration sticks around for four more years, then investors could shy away from investing because of concerns surrounding the same administration holding office.

Regardless, the current crisis in the eurozone does impact the United States economy at various levels.