Political gridlock in Italy is unhinging investors.
Investors worry the results of Italy's election could wind up undermining the progress that Italy has made in overhauling its troubled economy.
"It was the worst possible outcome, feared by market participants and European policy-makers alike," said Daiwa Capital Markets European economist Tobias Blattner.
U.S. stocks spiraled downward in a late-day frenzied sell-off Monday. European markets followed their cue and sold off sharply early Tuesday.
CNNMoney's Fear & Greed Index tumbled into neutral -- a level it hasn't touched in two months. It bounced out of neutral into greed but is still sharply down from the extreme greed level it was sitting in just two days ago.
The volatility sent the market's other fear gauge, the VIX, up 35% in one day. The VIX has surged more than 54% over the past five days, though it was also easing a bit on Tuesday.
As investors fled riskier stocks, they poured back into the safe havens of U.S. Treasuries and gold. The yield on the 10-year Treasury note slid further below 2% and gold prices are back above $1,600.
It wasn't all that long ago that Italy was on the brink of seeking a bailout. If the current gridlock can't be broken, investors worry Europe's debt crisis could roil global markets.
Investors were already getting worried about the bull market. Since the start of the year, they've returned to stocks but the pace of inflows has slowed considerably in recent weeks. At the same time, bond funds continue to be favored, with billions of dollars flowing into bond mutual funds weekly.
Still, even with the Italian wall of worry, bond yields have a ways to go before hitting a new record low and stocks are still up 5% to 6% this year. And the volatility of the VIX may continue but, at 19, it's also a bit away from its fear trigger level of 30.
And consider this. The last time, CNNMoney's Fear & Greed Index was in neutral, investors were worried about the economy falling off the fiscal cliff. This time around, they aren't worried about Friday's looming deadline for forced budget cuts, or sequestration. Most think it's just a matter of time before lawmakers reach a deal.
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
I realize that Groundhog Day is mostly an American phenomenon. But if there were any furry, prognosticating rodents peeking out of their holes in Europe over the weekend, they probably didn't like what they saw.
Madrid MOREPaul R. La Monica - Feb 5, 2013 1:03 PM ET
Italy's borrowing costs continue to fall as investors bet the European Central Bank will backstop the nation's massive bond market.
The Italian government sold €2.9 billion worth of 10-year bonds Thursday at a yield of 4.45%, down from 4.92% at the previous auction in October. It also sold €3 billion of 5-year notes at a yield of 3.23%, compared with 3.80% last month. Yields and prices move in opposite direction.
In the MOREBen Rooney - Nov 29, 2012 10:38 AM ET
Following years of setbacks and shortfalls, efforts to stabilize the euro currency union finally appear to be taking shape, with policymakers scoring two key victories in as many weeks.
"It's encouraging to see, but all these measures were necessary to preserve the status quo," said Marie Diron, senior economic adviser at Ernst & Young in London. "Without these things, the situation would have been quite dire, but we've learned to be MOREBen Rooney - Sep 14, 2012 7:44 AM ET
European Central Bank President Mario Draghi defended the euro currency Wednesday and reiterated that "exceptional measures" are justified to stabilize financial markets.
In an op-ed published in German newsweekly Die Zeit, Draghi said the euro was launched as a "currency without a state," built on an "institutional framework" that left it vulnerable to crises.
Draghi went on to say that the the euro area needs a "new architecture" to complete the monetary MOREBen Rooney - Aug 29, 2012 12:55 PM ET
Spain and Italy have been a major source of concern for global investors, but you wouldn't know it from the stock markets in those countries.
Monday was a down day for most European markets, but stocks have been rising across the continent since European Central Bank president Mario Draghi made his now-infamous remark that the ECB will do "whatever it takes to preserve the euro" late last month.
Since Draghi uttered those MOREBen Rooney - Aug 20, 2012 12:44 PM ET
Spain and Italy came under renewed pressure in the bond market Friday after the European Central Bank said it would not buy government bonds unless specific conditions are met.
One week after he said the ECB would do "whatever it takes" to support the euro currency, ECB president Mario Draghi said Thursday that governments, including those in Spain and Italy, must first ask the eurozone bailout funds to buy bonds before MOREBen Rooney - Aug 3, 2012 7:34 AM ET
The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
The European debt crisis is over! Italy and Spain have it all figured out! The problem isn't unsustainable debt loads, ineffective economic policies and a lack of competitiveness on the global stage. It's that evil short MOREPaul R. La Monica - Jul 24, 2012 12:37 PM ET
Securities regulators in Spain and Italy both instituted short-selling bans Monday as financial markets tumbled.
The move is designed to limit the downward pressure on markets by preventing investors from betting against shares of certain companies.
The ban in Italy applies only to short positions in shares of banks and insurance companies, according to the Commissione Nazionale per le Società e le Borse, or CONSOB.
Spain's Comisión Nacional del Mercado de Valores (CNMV) MOREBen Rooney - Jul 23, 2012 10:44 AM ET
Investors continued to exit the stock market last week, as worries about Europe's ongoing debt problems keep rattling investors.
U.S. stock mutual funds lost $1.5 billion during the week ended June 27, according to the Investment Company Institute. Investors have now withdrawn money from the stock market for 18 of the past 19 weeks.
The latest week's outflows were logged prior to the "breakthrough" deal struck by European leaders aimed at easing the recapitalization of banks. MOREHibah Yousuf - Jul 5, 2012 2:03 PM ET
Not a member yet?Sign up now for a free account
|Greece deeply divided as vote on Europe looms|
|Windows 10 won't be available to everyone July 29|
|Getting $15,000 a month from an old shipping containter|
|What a Depression looks like (Greek style)|
|Why China's crazy stock market is getting scary|