If there is a crisis—one remains unlikely, but the possibility is rising—how would it affect the U.S.? The direct effects could be meaningful, as the U.S. is the largest holder of Turkish financial assets, but that would likely hit only the owners. From a systemic point of view, however, the U.S. financial system is both less exposed and better capitalized than it was in previous crises. While there could certainly be turbulence, a significant crisis seems unlikely at this point. The risk appears to be higher for the European financial system, which did less cleanup after the last financial crisis, and the systemic effects there may well end up being meaningful. Here in the U.S., though, while the potential for damage is real, it should not be either substantial or systemically dangerous.
Keep Calm And Carry On
That outlook is pretty much what the financial markets are telling us as well. The U.S. stock market is down a bit, but not substantially; it remains within 2 percent of its all-time highs. Per above, markets are expecting turbulence but not the end of the world. Overall, that seems like a pretty good read from a financial perspective as well.
Brad McMillan is the chief investment officer at Commonwealth Financial Network, the nation’s largest privately held independent broker/dealer-RIA. He is the primary spokesperson for Commonwealth’s investment divisions. This post originally appeared on The Independent Market Observer, a daily blog authored by Brad McMillan.