Wall Street Journal
January 10, 2012
Consider it a sign of progress: The euro lately has stopped dragging the U.S. stock market down with it.
The currency dropped about 3% against the dollar in the fourth quarter, and yet the S&P 500 gained 11% in its best quarterly performance since 2009. The trend has persisted into the new year: The euro has fallen roughly another 1.5% to about $1.27, while U.S. stocks have added a similar amount.
This is a marked turn from the days in which each new bout of negative news regarding Europe's debt crisis would drill the Continent's currency and flip markets globally into risk-off mode. Indeed, Société Générale strategist Sebastian Galy calls it a "regime shift" and highlights the flip-side of this development: Stocks and the dollar have been rising together, an occurrence that has been rare since the halcyon days of the late 1990s.
This points to a new phase in Europe's debt crisis: a period of acceptance after the initial shock, denial and disbelief. Investors now are resigned to the reality of a European recession and the likelihood of losses on holdings of sovereign debt from Greece and perhaps other European nations. "The market is pretty well-priced for solutions to not be quick in coming," says Deutsche Bank strategist Alan Ruskin.
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