Market Preview: Low-Grade Uncertainty

NEW YORK (TheStreet) -- Wall Street followed Wednesday's mighty surge with a mini version of the same dynamic on Thursday, again underlining the idea that the prospect of Greece leaving the euro still isn't really all that scary to traders just yet.

Despite its feeling that just such a scenario is "increasingly likely," Citigroup struck a semi-optimistic tone earlier on Thursday, saying that as long as the world's central banks step up and do what's necessary to keep panic in check, stocks should be fine. The firm polled its various analysts from across the globe and found they "agree that Greek exit should be manageable, but that aggressive action must be taken to prevent contagion spreading to bigger economies and markets."

Simple enough. Even the recent pullback in stocks got a somewhat positive spin.

"Citi equity strategists suggest that cheap valuations should limit the downside," the firm wrote. "Outside Europe, the world economy continues to grow. Equity sentiment indicators have just dropped back in to 'Panic' territory, confirming our suspicion that there is already a lot of bad news priced in. While it looks like it's going to be another difficult summer for global equity markets, our targets are now suggesting 20% upside by end-2012. We would buy into weakness."

Wall Street has a frustrating logic at times, reducing real world events (and their inherent unpredictability) to no more than an impetus to adopt one trading stance and not another. Plenty of digital ink gets spilled about the "risk-on/risk-off" mentality that's prevailed at times, and that's pretty much how Citigroup is viewing the pullback that began right on time at the start of May.

"Understandably, the first response of global investors to the latest EMU flare-up is to put on the global risk-off trade," the firm wrote. "At a macro level, they have sold riskier assets such as equities, credit and peripheral sovereign bonds. They have bought 'core' sovereign bonds in Germany, U.S., Japan and the U.K. In currency markets, they have bought the US dollar and the yen. This is consistent with other risk-off phases in global markets."

So it's not that the fundamentals don't matter, or that individual stocks can't break away from the herd on any given day based on their own headlines, but right now, the cloud created by Europe (and the lull in corporate news with second-quarter earnings season still weeks away) is too much to overcome.