Greece’s debt crisis, China’s bank curbs: What other surprises might rattle the market?

Investors brace for the next overseas surprise

CHARLOTTE, N.C. — Investors may wish they had a crystal ball.

Stocks have been in flux over the past few weeks as surprises kept coming from overseas. Greece’s debt crisis, similar troubles in Portugal, and China’s latest moves to slow down its economy have kept investors guessing.

At least the news is becoming less shocking. The Dow Jones industrial average recovered most of its losses Friday to end down 45 points following China’s decision to force its banks to boost their reserves again. The Dow managed a weekly gain of about 1 percent — its first after four weeks of losses.

It’s been a tough start to the year, and many traders are keenly interested in recouping some of the losses they’ve suffered since the beginning of 2010. The Dow has fallen 3.2 percent so far this year, and the Standard & Poor’s 500 Index is down 3.6 percent.

Greece’s debt problems threatened to destabilize Europe’s shared currency, the euro. Meanwhile China, which many people thought was done applying the brakes to its economy, moved again to keep growth under control by curbing bank lending. These and other global factors could easily have ripple effects on the U.S. economy.

“Most people don’t really know what news is going to impact them, so all news must devastate them,” said Ken Grant, a partner at Waterstone Private Wealth Management in Tulsa, Okla. “What could happen next? Who knows.”

Global news has been a big driver of U.S. stocks even during earnings season, when news about U.S. companies usually dictates the market’s direction.

The latest surprise from abroad came on Friday, when Chinese regulators said they moved for the second time in a month to boost reserve levels at banks. Chinese leaders are worried that their economy is overheating and want to prevent speculative bubbles before it’s too late.

That’s fine for China, but some investors also worry that a slowdown could disrupt a U.S. recovery by hurting exports and profits of companies that do business there. China’s previous move to cut back bank lending a month ago spooked the market and helped start the recent slide.

“If the robust recovery in China were to stagnate or bust as a bubble, the global economy would be impacted,” Grant said.

Elsewhere, concerns about debt problems in European countries like Greece, Spain and Portugal have also weighed on the market and increased volatility in recent weeks. European Union leaders pledged last week to provide Greece with support as it tries to bring its debt problems under control.

However, no details were provided after the initial pledge, and an update is expected this week. That could influence markets and also set a template if other European countries need similar support.

“With everything going on, we have to remember we’re all in this together,” said Beth Larson, principal of Evermay Wealth Management in Washington, D.C. “We are in a global economy these days.”

While it may be difficult to forecast the next big hit that could send markets plummeting or skyrocketing, investors must not forget ongoing struggles here in the U.S.

Consider: The nation’s jobless rate remains high at 9.7 percent. Also, a recent report on consumer sentiment was poor.

And while a report Friday showed modestly better-than-expected retail sales for January, economists caution that the spending increases since summer could falter as the jobs crisis keeps consumer spending in check.

Among the economic reports coming out this week include January housing starts, import prices, U.S. consumer inflation and inflation at the wholesale level.

Any new report could bring bad news. But, even if that happens, Grant had some words of caution: “It doesn’t mean the market is only going to go down from here.”

And in case that crystal ball is too cloudy to pick up the next surprise for the market — be it good or bad — the smart investor will be ready for more volatility.

“The reality is, markets move no matter what,” Grant said.