Market ‘Freaking Out’ Over Greece, JPMorgan: O'Neill

Investors have reason to be nervous considering the amount of market pressures, even though the longer-term direction remains higher, noted Goldman Sachs strategist Jim O'Neill told CNBC.

Jim O'Neill
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Jim O'Neill

After swinging through a cross-country tour of the U.S. last week, the London-based chairman of Goldman Sachs Asset Management said he saw an economythat is improving, despite what some of the indicators show.

"I can sort of see why people are freaking out," O'Neill said during a "Squawk Box" interview. "The U.S. is on the mend, and yet the markets are now obviously worried about the interconnectivity of bank lending because of the unfortunate recent episode of JPMorgan and, of course, the staggering mess in Europe."

O'Neill remains bullish on stocks, having recently projected a move to around 1,500 by year's end for the S&P 500 , despite the recent slump.

Bank stocks have been a primary culprit in pulling the market off its early April peak, falling some 14 percent in less than two months.

JPMorgan Chaseadded to fears about the industry, after reporting that a hedging strategy gone bad will cause the company to lose at least $2 billion, though the bank still expects to report a strong profit for the year.

Europe, meanwhile, faces turmoil after recent Greek electionsfeatured wins from the far left, which opposes austerity measures aimed at reforming the country's fiscal system and getting it to comply with euro zone mandates.

A final election next month will help determine whether Greece stays in the euro zone or leaves, allowing it to reinstitute its own currency, which it then would devalue to help pay off a debt load approaching half a trillion euros ($618 billion).

"The focus of the decision on June 17 is effectively the choice of, do you want to get out of the euro or not?" O'Neill said. "Because the European policymakers cannot have any confidence about how to manage the contagious effect, they are trying to incentify them to vote to stay in."

European policymakers have taken great lengths to help bail out Greece from its debt mess, but O'Neill said the measures can only go so far, with the rest depending on the Greeks themselves.

"They can't keep Greece in if Greece isn't gong to commit to what it's being given support on," he said.