After posting strong gains in 2009 and 2010, the stock market embarked on 2011 in fine fashion. The S&P 500 index was up 9.0% by April and was still up over 8.0% in early July. The first half of the year brought several issues and uncertainties, such as the Arab Spring revolts, a brutal tsunami and nuclear meltdown in Japan, continued rising unemployment in the U.S., another round of “quantitative easing” from the Fed to help jump-start our economic recovery, and the first Greek bailout. The stock market remained steadfast through it all.
Then the environment changed. Congress and the President sparred over whether to raise the national debt ceiling. They ultimately reached a compromise to allow the government access to additional debt funding, but the deal came too late. Standard & Poors decided that our elected officials’ fiscal profligacy jeopardized the creditworthiness of U.S. Treasury bonds. In response, S&P downgraded the credit rating of the United States from AAA to AA+. Consequently, the stock market lost its former resiliency. Stocks dropped precipitously, losing just shy of 18.0% from their peak in late April to their low on October third.
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