When the Spanish stock market hovered around 11,000 points throughout June, we reported that stocks were expensive and we could not make a buy call, because companies had yet to show improved profits. Further, the inexplicable gains started to worry investors, who were wondering whether people were buying up stocks with their emotions or their brains.
The same scenario is true for other parts of Europe as other stock markets in the region increase in value and foretell growing macro stability. Markets were begging for a correction. It already happened in Portugal, and other European markets started to move downward yesterday. The Ibex 35 and Dax30 hit new support levels, raising the question: are we seeing a bearish trend? Hardly. Analysts are already talking about how new reforms will affect the banks. Portugal's stock market regulator suspended Espíritu Santo (BES) trading. Hours before, it did the same thing with the holding company that owns 25% of the banks shares (ESI).
Now, there is the risk that governments will intervene, which threatens economic stability in the periphery. In Spain, Banco Popular and ACS decided yesterday to suspend bond issues. The United States fined BNP Paribas, Deutsche Bank and Commerzbank, causing those stocks to fall. This widespread correction, while unforeseen, happened because of Portugal.
