Greece became the first developed economy to default on a loan with the International Monetary Fund. But it's not Greece that stands as the biggest danger for stocks, says MarketWatch columnist Mark Hulbert.
"There are many legitimate reasons why the stock market is vulnerable to a serious decline. But the Greek debt crisis is not one of them," Hulbert writes
. "After all, investors can hardly be surprised by Greece’s debt difficulties, which have dominated the news for over five years now."
And Greece accounts for less than 2 percent of eurozone GDP.
So what's the real worry?
"We have a stock market that, depending on the metric, is either significantly or extremely overvalued, coupled with an already anemic earnings growth rate that is dangerously dependent on an unsustainably high corporate profit margin," Hulbert says.
The S&P 500 carries a 26.5 price-earnings ratio, based on a measure formulated by Nobel laureate economist Robert Shiller that encompasses 10 years of earnings. In recent months, the index has stood at its highest level outside of the pre-cash peaks of 1929, 2000 and 2007.
S&P 500 company earnings are expected to show a drop of 4.5 percent for the second quarter, according to FactSet.
Other experts agree that Greece isn't the darkest cloud on the global financial horizon.
CNBC’s Ron Insana warns that while the world frets over Greece, investors really should have much more fear about China.
He said four recent global crises may provide a cruel summer for investors: Greece, China, Puerto Rico and the much-anticipated Federal Reserve rate hike.
China's stocks closed in bear-market territory, and uncertainty about Greece shook sentiment across the region, Dow Jones Newswires reported.
A move by China's central bank over the weekend to cut interest rates failed to give a sustained lift to China's main stock market, which has fallen 21.5 percent from a high on June 12, crossing the 20 percent threshold that defines a bear market. Stocks have been under pressure over the past two weeks after a yearlong debt-fueled rally.
Meanwhile, Puerto Rico claims it can't pay the $72 billion owed to its creditors and wants a moratorium on payments until it can renegotiate its external debt, Insana said.
Adding to that, New York Fed President Bill Dudley said that a September rate hike by the Federal Reserve is quite possible, given the recent strength of U.S. economic data.
“Individually, these events wouldn't have a huge impact but taken together, they could easily create a summer of discontent for equity- and bond-market investors,” Insana wrote in a commentary for CNBC.
“Having said that, this could also play out like 1994, 1997 or 1998, where external crises led to a friendlier Fed and extension of the economic recoveries and stock-market rallies, here at home,” he said.
“The U.S. is a bastion of stability when compared to almost any other country in the world. Any fallout should be limited, or at least one would think, given past history and past policies,” he said.
“Of course, this is all predicated on whether or not central banks can get any friendlier than they already are,” he said.
“With zero interest-rate policies in force in most of the world, and unconventional monetary policies also being widely deployed, friendly may not be enough this time around. So, sit tight for this week, but if China overtakes Greece as a point of concern, it may be time to protect your portfolio from the rest of the world.”
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