The ACM Journal 2011 Q3

It will come as no surprise to anyone that the global stock markets performed dismally in the third quarter. The dynamics within t h e quarter were interesting, though. July started as just another month in the bull market of the past couple of years. We even caught a whiff of the late 1990s as technology IPOs from Groupon, Linked In, Zillow, and others were coming to market well above their initial price points. Indeed, the technology resurgence was well underway when Apple surpassed Exxon Mobil as the most valuable company in the world based on its market capitalization, weighing in at over $380 billion.

Alas, unlike the 1990s, this tech boom would last only a few weeks before the appetite for risk evaporated and the economic realities of the current decade set in. The unsteady political environment didn’t help either. Our worthy leaders in Washington squabbled over whether to increase the country’s debt ceiling until the last minute, causing greater uncertainty in an already fragile financial world. In the end, someone prevailed (but it wasn’t common sense) and the debt ceiling was lifted with some gratuitous spending cuts agreed upon to help tame the nation’s deficit.

However, the debt deal was not enough to satisfy the sages at Standard & Poor’s who decided the creditworthiness of the U.S. was no longer up to their triple A standard. President Obama’s assurances that the U.S. would always be a triple A country in his estimation did little to assuage the situation. The stock market continued the selloff that started when the debt deal was first announced.

The risk tolerance of early July gave way to risk aversion later in the month and resulted in stocks falling almost 20% from their peak. 10-year Treasury bond yields also fell to a historic low of just north of 1.7%. As if we didn’t have enough problems in our own country, concerns over Europe’s economy wreaked further havoc with the global financial markets.

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