U.S. stocks largely ignored Greece until debt talks failed, and now the market is likely to stay highly volatile until there is a resolution.
"We were basically within striking distance of all-time highs, coming in today," said Michael O'Rourke, chief market strategist at JonesTrading. "There was no risk priced in whatsoever, and even at these levels there's not much risk priced in to the market today."
Selling accelerated in Monday afternoon trading as traders worried not just about Greece, but China's growth and a separate debt crisis brewing in Puerto Rico. Major indices were down 2 percent or more, and the Dow's 350 point decline to 17,596 was its second worst decline in three years. But European markets were harder hit, with the DAX down 3.6 percent and France down 3.7 percent. Japan's Nikkei was down 2.9 percent.
"In the short-run, we were caught unprepared for this. The way we were trading and everything suggested incredible complacency with respect to Greece," said Gina Martin Adams, institutional equity strategist at Wells Fargo Securities. "Nobody has great visibility with how things are going to resolve themselves and that's an element of uncertainty that wasn't priced a week ago. We probably do have a period of correction, where defensives outperform."