I'm kind of curious to learn why US markets are falling due to Greece - Eurozone crisis. US had almost no exposure to Greece bonds and the fear of Grexit and the future of Euro has made the investors to pull out of the European market. But their investments must go somewhere right? Ideally, they could try to invest in US markets, since the macroeconomic indicators of US has been reasonably stable this year. But instead, I see the US markets are also falling? Why is this the case and where is the money pulled out of Eurozone is getting invested?
As dg99 mentioned the response has actually been relatively muted so far in the American markets (SPX down 3% or so from its peak). Generally, problems in major world equity markets cause cascading problems in their trading partners. In this case there are many American companies that have European stores or otherwise sell into European markets that are affected by the turmoil. There are secondary effects as well as companies that trade with affected companies feel the pain and so on.
As you mention the news out of the US has been fairly positive, but a melt down in the EU would likely overwhelm the tepid growth in the North American region.
The important thing to note here is that the investments do not necessarily need to go somewhere. We can just all agree that the value of European investments is significantly less now because future earnings is likely lower (really for any reason) and the price will change even if no one sells and no money leaves the region. In a very real sense billions of value just no longer exists. However, it is true some people have been selling and investing elsewhere. The main beneficiary is generally safer instruments like bonds which have rallied somewhat.
Beyond what some of the other answers and comments have mentioned, there are other psychological factors at play:
- Greece leaving the Euro sets a precedent for other countries such as Spain and Portugal who have had austerity measures in place. This could theoretically cascade in to many other countries also leaving the Euro which then adds some major turbulence to global economies.
- More recently, there has also been another mini-correction in the price of oil with Brent falling below $60.
- Heavy turbulence in the Chinese markets must also be considered.
- Markets are trying to predict and factor in upcoming policy decisions by the Fed. Perhaps there is a reduced chance of a U.S. interest rate hike because of poor economic data.