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The euro slumped vs. the dollar Friday afternoon as results of Europe's stress tests showed failures by 7 EU banks, with a combined capital shortfall of $4.5 billion.

"The results of the stress test were of course better than thought relative to the amount of banks 'failing' and the amount of total capital that needs to be raised in order to get every one of the 91 to a 6%+ tier one capital ratio," writes Miller Tabak equity strategist Peter Boockvar. "We can all debate whether the test was helpful or not since so many 'passed'... but the bottom line is the test was not truly stressed to the real worst case scenario, a sovereign default."

Of course, the market reaction could also be a reflection of the complacency and relative optimism about Europe that has emerged of late, as discussed here.

Wall Street turns its lonely, working-for-the-weekend eyes to Europe Friday. Financial markets weakened ahead of the results of bank stress tests, due at 12 pm ET Friday, as traders panned the methodology.

But don't join the market's knee-jerk rush to judgment, says Mark Dow, fund manager at Pharo Management, a macro hedge fund with about $3 billion of assets.

"We shouldn't judge the immediate reaction of the markets as a validation or a rejection of what's going on," Dow says. "Surprising as though it might be, occasionally the markets are rash and go in the wrong direction [and] it takes us a while to sort things out."

Taking a slightly long-term view, Dow predicts the stress tests "will be successful." As with Europe's ‘PIIGS' after the $1 trillion bailout package was announced in May, the stress tests will give the banks "space to do what they need to do," including raise capital if need be, Dow says.

If you'll recall, there was a very negative market reaction to the announcement of U.S. stress tests in February 2009, but that selloff proved to be a great buying opportunity, especially for financial stocks. Similarly, there was tremendous gnashing of teeth after TARP was announced in September 2008 but, in the end, most observers believe the program was successful in stabilizing the banking system, even if certain issues were bungled. (See: AIG counterparties, backdoor bailouts for)

Longtime viewers may recall that Dow took a contrarian, i.e. positive, view on TARP, U.S. stress tests and the EU-IMF $1 trillion bailout. "This is part of a multi-tiered program," he says of today's Europe bank stress tests. "Now we have to judge [the Europeans] on their merits...do they get it done or not? Now they'll have another 12 months or so before the rubber meets the road."