The reason: In a market that derives 70% of its growth from consumer spending, the last half of this year will be all about those consumers - and about the economy's inability to generate enough jobs to keep the nation's cash registers ringing.
If you add to that concern the end of the various government stimulus efforts, possible fallout from the Eurozone debt contagion, and oil in the Gulf of Mexico defiling the shores of four states, you end up with an economic outlook that's clouded with uncertainty.
And that uncertainty will continue to stifle hiring and will result in another round of consumer belt-tightening - and a continued economic malaise.
Greece, Portugal and Spain - three of the so-called "PIGS" - have to do so, of course. But Germany - generally reckoned to be in excellent shape - is also cutting its deficit, as is France, which hasn't run a budget surplus in 40 years. Britain, too, with no need to protect the euro (it's not a Eurozone member) just introduced a budget that cut the deficit by $140 billion over four years.
U.S. President Barack Obama and other Keynesians warn that Europe may push its own economy - or even the global economy - back into recession.
But here's the surprising reality: Europe may gain from its fiscal pain - and its deficit-trimming actions offer the best hope for a lengthy recovery.
The big story is Spain and the United Kingdom, and the news is getting worse.
In the past week, Spanish officials acknowledged to reporters that the country's banks and companies were having difficulty obtaining credit. The credible website EuroIntelligence reported that Spain is now effectively cut off from international capital markets, which is a major new development.
The coordination of global efforts to promote economic recovery will be the main issue at the weekend's meeting, which was set to spotlight the value of China's currency before Beijing announced Saturday that it would allow the yuan to appreciate. The United States and Europe's differing views on the most effective strategies to maintain global economic growth and slash bloated government budgets are increasing tensions between leaders.
"There is a need to move toward rebalancing," Stewart M. Patrick, a senior fellow at the Council on Foreign Relations in Washington, told CNN. "But every country has different domestic political demands, and that is what drives decision making."
President Obama is worried that drastic austerity measures in Europe will choke global growth and collapse a fragile recovery.
In terms of that whole new rules/new profit opportunities paradigm, here's one that may surprise you: The ongoing European crisis could end up as a net positive for U.S. stocks.
Let me explain...
To see how Europe's travails can aid U.S. stocks, please read on...
As Keith Fitz-Gerald, Money Morning's Chief Investment Strategist, pointed out last week (June 10), from January through May, the dollar gained ground against all but two of the world's leading currencies - China's yuan and the Japanese yen - and it retained parity with them. The greenback appreciated by as much as 16% versus the struggling euro, which last week (June 8) briefly dipped to a four-year low below $1.20, and 13% against the British pound.
The InterContinental Exchange's (ICE) U.S. Dollar Index (USDX), which measures the dollar's value versus a trade-weighted basket of six leading foreign currencies, climbed from a low of 76.732 on Jan. 14, 2010, to an intra-day high of 88.586 on June 8.
A new government swept into office in late May and the ruling party leader declared the country had little chance of avoiding a Greek-style credit crisis because the former government had been cooking the books.
A spokesman for Prime Minister Viktor Orban said it was not an exaggeration to talk about the potential for default.
Either Spain's financial system is on the verge of a breakdown, or hedge funds and speculators are exaggerating the vulnerability of Spain's banks to capitalize on short-selling Eurozone securities.
Investors will have a clearer picture of what's going on in Spain when the results of stress tests performed on the nation's banks are released. But until those results are known, rumors of a bailout of Spain will continue to circulate and liquidity will remain tight.
Borrowing costs in Spain and throughout Europe have been on the rise in recent months, as market observers fret over high levels of debt. At a closely watched auction for 12- and 18-month bills on Tuesday, the Spanish government raised $6.4 billion (5.2 billion euros). However, the 2.3% interest rate on the 12-month bills was 0.7 percentage points higher than what it paid last month. And t he yield on the country's benchmark 10-year bond rose 9 basis points to 4.823%, the highest in almost two years.
Yet results in the past month are still heavily negative, ranging from -5.5% for U.S. stocks and -8.5% for Europe. China has suddenly become the most buoyant region, up 1.5% in the past month.
The variation in one-week and one-month results illustrate perfectly how investors are showing that they are hopeful but unconvinced that recent strength in GDP growth and corporate income advances are sustainable, and therefore won't buy stocks heavily until prices are so cheap that they discount worst-case scenarios. They want a high risk premium, in other words, before buying -- sort of like demanding a 72-month warranty before buying an expensive car.
And little wonder. The Greek debt crisis continues to threaten Europe's overall health, and could unleash an entirely new contagion on the rest of the global economy. Then there's China, - the engine of world growth during much of the financial crisis - which now appears to face the near-term triple threat of slowing growth, accelerating inflation and workplace unrest. Add in concerns about commodity prices and global debt levels and it's easy to see why currency investors have sought the safe haven of the U.S. dollar.
In short, it appears that "everybody" knows the greenback is the best choice for safety, quality and security.
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
To see why the dollar could roll over - and to see how to play it - please read on ...
Despite Eurozone debt concerns and rocky markets, Santander's move to expand into Mexico shows a healthy balance sheet that has stood strong against the debt problems plaguing other European banks. Santander has managed to keep solid footing among Spain's unstable banking sector, where the nation's debt has hurt financing conditions and smaller unlisted savings banks have been suffering losses on property and housing loans.
"Santander is showing that it can still make decisions and go on with its business plan despite the liquidity problems in the markets," Venture Finanzas analyst Ignacio Mendez told Reuters.
But what if your buy-and-hold strategy has been implemented using mutual funds? As part of a solid "defensive-investing" review, should you consider bailing out of your current mutual-fund holdings at this point and looking for better funds to ride into any future recovery?
You'll only know if you take the time to make the review. And you should take that time.
If stocks are as good at anticipating global calamity this time as they were in that horrible spring 70 years ago, we may be in for a terrible second half.
It's a bitter irony that so many of those old enmities are flaring up again on the Continent at this critical time. The European Union was created two decades ago at behest of the former Allies to prevent the Continent from sliding into armed conflict again, and the euro currency was later launched to cement the new political relationship.
But many centuries of deep-seated distrust are hard to negate with diplomacy and idealistic optimism, and now we see Europeans back at each others' throats in a flurry of recriminations over who is to blame for outrageous deficits, debts and defaults in the Eurozone -- and more importantly, who should pay for them.