The U.S. stock market is "freaking out" over concerns Greece will exit the eurozone, and rightly so, but better days lie around the corner, says Jim O'Neill, chairman of Goldman Sachs Asset Management.

The U.S. economy will continue improving, and the S&P 500 broad stock index should finish 2012 at around 1,500, up from around 1,316 at Monday's close.

"I can sort of see why people are freaking out," O'Neill tells CNBC's "Squawk Box".

"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 adds, referring to botched hedging trade at JPMorgan that will cost the bank at least $2 billion, according to initial estimates.

Political parties in Greece recently failed to produce a coalition government, as May 6 parliamentary elections pushed in more fringe politicians opposed to austerity than from the more mainstream New Democracy and PASOK parties.

A new round of elections is set for June 17, and fears persist that enough politicians opposed to austerity will win. An end to austerity measures could mean an end to bailout money and Greece exiting the eurozone, which could churn global markets.

"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 says.

"Because the European policymakers cannot have any confidence about how to manage the contagious effect, they are trying to incentivize them to vote to stay in."

The European Commission, the European Central Bank and the International Monetary Fund recently made the euro equivalent of over $171 billion available to Greece in rescue funding provided the country sticks with painful austerity measures to streamline its bloated public sector.

"They can't keep Greece in if Greece isn't going to commit to what it's being given support on," O'Neill says.

Other market watchers agree that the Facebook IPO and the botched trade at JPMorgan are going to take a back seat to Greece going forward, especially if Syriza, a Greek leftist front, stays ahead in the polls.

"If the pro-euro major parties fail to muster enough support to form a coalition and the radical left Syriza party and other anti-euro, anti-austerity parties secure a majority, the risk of a disorderly Greek exit from the euro increases and could roil markets," says John Praveen, chief investment strategist at Prudential International Investments Advisers, according to CNNMoney.