What's happening in the headlines can affect you as an investor. Here's what's going on, what you need to know, and what you should do.
The cold, hard facts
After opening slightly lower, the Dow (INDEX: ^DJIA), the S&P 500 (NYSE: SPY ) , and the Nasdaq (INDEX: ^IXIC) all ended the day essentially flat as Italian sovereign-debt woes and the country's political turmoil continue to weigh heavily on investors' minds.
Last week it was Greece casting a black cloud over markets on both sides of the Atlantic, and now it's Italy, seen as potentially the next shoe to drop in the European sovereign-debt crisis. With an economy that rivals Germany and France in size, however, an Italian default would have much more wide-ranging effects than a Greek one.
And with Italian Prime Minister Silvio Berlusconi's coalition government teetering on the edge of disintegration, markets are more on edge than ever. Italian government bond yields, for example, rose to their highest since 1997, approaching levels regarded as unsustainable.
One thing you need to know
"The volatile spillover impact from sovereign debt is now approaching the highs we saw in July during the second Greek bailout discussion," Mandy Xu, an equity-derivatives strategist at Credit Suisse in New York, told Reuters.
As earnings season winds down, and with a light U.S. economic calendar this week, equities have been very sensitive to headlines from Europe. In other words, with no acute crises going on here, investors are looking across the pond for trouble.
As good and proper Fools, however, we know better than to obsess over the day-to-day gyrations of the market. You're in it for the long term. Since the European sovereign-debt crisis isn't going anywhere, anytime soon, take a few well-spent hours and check in on your investments' fundamentals. Make sure the companies you're invested in are still living up to your original investment theses and are managing their financial affairs well.
And then hold on to your hats, as well as your stocks, for what will continue to be a bumpy ride.