biggest one-month drop in decades.
The nosedive was a nervous reaction
by institutional traders to bad news
from Europe—especially the fear that
Greece would default on its debts,
triggering a new chapter in the
financial crisis…and perhaps the
recession’s second dip.
Stoking the panic was German
chancellor Angela Merkel’s reluctance to embrace a European Union
bailout for Greece. She was concerned
about a regional election and didn’t
want to alienate German voters. By
hanging tough, she helped drive up
lending rates in Europe, which frightened the U.S. stock market. Then
Merkel agreed to a bailout, and the
stock slide abated along with immediate fears for Greece—proving
once again that investing based on the
market’s gyrations is a recipe for emotional and financial whiplash.
Go Figure
YOU CAN’T
TIME THE
MARKET
Stocks bottomed
and bounced
back strongly…
S&P 500 INDEX
1200
1000
800
;
May 2008
;
May 2010
3. Keep your focus
on the big picture
Disturbing headlines are inevitable:
Home foreclosures are expected to
continue at near-record rates; many
states face ugly choices between slashing budgets and raising revenue; the
BP oil spill may hobble the Southeast.
Yet in May, even as the European crisis
unfolded and the market fell, a panel
of 46 leading economists predicted
the U.S. economy will grow a solid 3. 2
percent both this year and next. “We’re
climbing out of a deep hole, but our
problems are much less severe than
a year ago,” says Mark Zandi, chief
economist at Moody’s Analytics. “
Busi-nesses in the U.S. are very profitable,
and we’re seeing some job growth,
increasingly broad-based across industries and regions of the country.”
…even as the
unemployment rate
shot up...
10%
8%
6%
;
May 2008
;
May 2010
…and housing
prices sank.
CASE-SHILLER 20-CITY
COMPOSI TE INDEX
4. Besides, bad news
often has a flip side
In economics there are always both
winners and losers. With European
160
150
140
;
March 2008
;
March 2010
