The following is an excerpt from TOM LAURICELLA | July 28, 2012 | WSJ.com |
Amid a fresh barrage of bad economic news, the mood among investors these days is glum. So it might come as a surprise that stocks are actually up so far this year.
Stocks had swooned during the spring amid yet another flare-up of worries about Europe, with the Dow Jones Industrial Average losing 820 points in May alone.
But since then, the Dow has rebounded almost 700 points. Crucial to the bounce has been expectations that the Federal Reserve will move quickly should the U.S. economy deteriorate further.
As a result, even after a couple of white-knuckle days last week, the Standard & Poor’s 500-stock index is up 10% so far this year.
The Dow has struggled a bit more, gaining 7% so far in 2012, but the technology-heavy Nasdaq is up a hefty 14%.
While that’s good news for many portfolios, investors shouldn’t get complacent. There are considerable risks both in the U.S. and abroad that could quickly send the still-jittery markets into a tailspin.
Not That Bad
Investors, particularly individual investors, haven’t been convinced by the 2012 rally. They’ve bailed out of U.S.-stock mutual funds in droves—withdrawing $71 billion so far this year, according to the Investment Company Institute, the mutual-fund industry’s trade group.
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