A so-called Grexit wouldn’t necessarily cause the U.S. stock market to fall.
On the contrary, the U.S. equity market might very well rally in the wake of a Greek exit from the European Monetary Union.
The nightmare scenario has a Grexit leading to the collapse of several other weak European economies, which, in turn, could precipitate a wholesale depression not just in Europe but around the world.
Consider the stock market’s performance following the four such crises prior to Europe’s. Those four were:
The 1994 Mexican peso devaluation and associated crisis
The Thai government debt crisis 1997, which led to the phrase “Asian contagion”
The Russian ruble devaluation in 1998, which led to the bankruptcy of U.S. hedge fund Long-Term Capital Management
The 2001 Argentinian government debt/currency crisis
The accompanying chart plots two data series. The first represents the stock market’s performance since the European debt crisis first erupted 5-plus years ago — in November 2009 — and the second is an average of how the market reacted following those four prior cases. For both series, 100 represents the stock market’s level when those crises first broke out on the world financial scene.