Aside from Margin Debt, the S&P 500 has Another Problem
Europe shouldn’t be underestimated. The GDP of the European Union is massive and as of 2012 it was bigger than the U.S. and significantly bigger than China. While many are worried about the high margin debt that is fueling the recent rise in the S&P, Europe’s declining situation could be the straw that breaks the camel’s back. Its unemployment rate is rising, its consumer confidence is falling and industrial confidence is falling. The world economy is tightly interconnected. The EU’s large size ( its GDP is around double China’s GDP) means that the fall of Europe would have a significant impact on the S&P 500 (SPY) and the world’s broad stock indexes.