Wall Street keeping close eye on Turkey

Currency crisis having little effect on USA

Just as the bull market is set to become the longest in history, U.S. investors are confronted with another crisis from a far corner of the world.

What’s giving Wall Street the jitters this time is Turkey’s plunging currency, which is down about 40 percent this year against the dollar.

Despite a brief respite and nearly 8 percent rebound Tuesday, the Turkish lira’s free fall is causing acute economic pain in that country’s economy, the world’s 17th largest, and sowing fears that Turkey’s woes will spread to other countries. Those concerns are already undermining confidence in global financial markets and causing asset prices to fall, especially in emerging markets and Europe. The damage has been more muted in the U.S., where the Dow Jones Industrial Average rose 112 points Tuesday, making up ground lost the prior two trading days, when it shed more than 300 points. From local to global crisis? Could Turkey’s currency crisis grow more damaging for Americans, upending 401(k) accounts and derailing the broad U.S. stock market, which has delivered hard-earned gains of 6.2 percent this year after rallying more than 19 percent last year?

The turbulence in Turkey bears watching, for sure, and will make it harder for that country to pay off its sizable debt of dollars held by global banks with its weakened lira, but investors need to keep things in perspective, Wall Street pros say.

While there’s always a chance socalled financial “contagion” can occur and turn one country’s misery into a broader problem, it’s unlikely the turmoil will infect the U.S. economy, corporate earnings or stock market in a major way. Why contagion is possible: The broader worry is that Turkey’s ability to pay its debts owed in dollars will be more difficult as its currency loses value. And if Turkey can’t pay on time and defaults, it could create risk and losses for banks around the world that hold an estimated $223 billion of Turkish debt, according to BIS data.

Banks most exposed are ones based in Europe. American impact: The U.S., thanks to a strong economy, is now viewed as a haven, which likely means more money flowing into the country and boosting asset prices at home.

“The U.S. dollar will continue to shine,” Katie Nixon, chief investment officer at Northern Trust Wealth Management, told USA TODAY via email, adding that risk-averse investors will also move cash into U.S. government bonds.