Another Eurozone Stress Test?

February 26th, 2013

by Doug Short

The initial turmoil stemming from the Italian election comes at a bad time for Italy and Europe in general. With much of the continent in recession, the markets certainly won't benefit in the near term from the potential domino effect of the clash between the forces of anti-austerity and the powers that be.

On the other hand, European markets are probably (hopefully?) closer to a secular bottom than they were five years ago. Here is a snapshot of the EURO STOXX 50 to illustrate my point.

Ditto the index for the country now in focus, Italy's FTSE Milan.

The Italian index has a pair of troughs since its 2007 all-time high, first in 2009 and again last year. Unfortunately, the trend between the two probably increases the odds of another trip to the minus 72% area.

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