After a Grueling Quarter, Investors Still Can't Relax
Financial markets took a haircut at the hands of the Federal Reserve and other central banks in the second quarter.
For now, the bankers have just taken some off the top. The question for the second half of the year is whether the markets risk a serious buzz cut.
U.S. stocks ended mixed Friday in a relatively quiet finish to a raucous quarter. The blue-chip Standard & Poor's 500 index closed at 1,270.20, off 2.67 points, or 0.2%, for the day. The S&P lost 1.9% for the quarter, leaving it up 1.8% year to date.
The average U.S. stock mutual fund fell 3.6% in the quarter through Thursday and was up 2.7% year to date, according to Lipper Inc.
In the span of three months, stock markets worldwide went from giddy optimism about the future to deep foreboding before ending the quarter with a renewed sense of hopefulness. The markets' relative calm of the last three years gave way to wild volatility in the second quarter.
The main driver of the emotional swings was the usual suspect: the Federal Reserve. With a flurry of warnings in early May about the threat of rising inflation, the Fed dashed expectations that it was near the end of its two-year credit-tightening campaign.
That triggered a stock plunge around the globe, provoked by fear that the Fed and other central banks would kill the global economic expansion.
But on Thursday, with a fresh hint that it might, in fact, be finished raising interest rates, the Fed helped stoke one of the strongest rallies on Wall Street in years. The Dow Jones industrial average rocketed 217.24 points, or 2%, on Thursday before ebbing 40.58 points Friday to end the quarter at 11,150.22.
"It may be premature, but I'll take this mood adjustment," said Robert Morris, an investment strategist at Lord, Abbett & Co. in Jersey City, N.J., who is bullish on stocks. "I think people were going too far the other way."
The Dow was one of the few major stock indexes to eke out a positive return in the quarter, inching up 0.4% and lifting its year-to-date gain to 4%.
The big-name companies in the Dow benefited from investors' sudden aversion to risk. Small-company stocks and those of emerging economies such as Russia and Brazil had far outpaced the Dow in recent years. But as the global sell-off picked up steam in May, money poured out of those more volatile markets.
