Global worries throw wrench into markets

Italy’s political crisis and related financial market turmoil is a reminder unexpected happenings outside the U.S. can still cause turbulence at home.

Investors, of course, are familiar with market storm clouds forming over Europe. Since the 2008 financial crisis, prices of U.S. stocks have been disrupted by the European debt crises in 2010 and 2011. And since then, the market has been hit by a populist wave, starting with Greece in 2015, the Brexit vote in mid-2016 and French elections last year.

On Tuesday, markets got another scare when Italy failed to patch together a new coalition government, raising the odds of another election late this summer or fall that could result in a rise to power political parties who aren’t fans of Italy staying in the 19-country eurozone. The mere prospect of Italy exiting the eurozone sent stocks in the U.S. and Europe spiraling lower. Italian government bonds also sold off sharply, sending yields up to 3.1%, up from 1.8% on May 1, and raising the borrowing costs of the indebted government.

“It appears Italy is this year’s episode,” Keith Lerner, chief market strategist at SunTrust Private Wealth, told clients in a research report. But Lerner’s base case is for European officials to do what it takes to keep the eurozone from tearing apart. Still, “the heightened political uncertainty is here to stay.”

Despite political risk in Italy and worries in other parts of the world, U.S. stocks can still cheer a low risk of recession at home and maybe get help from the world’s central bankers, who might keep monetary policy friendly to markets longer than expected.