The United States emerged from its deep gloom in March to turn in its best quarterly run-up in the S&P 500 index in nearly 11 years.
The last day of trading didn't shine, with the S&P falling 0.9 percent to 919.32. The Dow Jones Industrial Average fell 1.0 percent while the Nasdaq fell only 0.5 percent.
But the S&P's sparkling quarterly gain of 15.2 percent was a strong signal that traders have shaken off the panic after last September's collapse of Lehman Brothers. They've once again begun to embrace the hope that risk-taking can bring reward.
The S&P is nowhere near the 1251 level it hit on Sept. 12, the Friday before Lehman filed for bankruptcy. But in many other ways, the market has returned to pre-Lehman levels:
• The VIX, an index of market volatility, closed Monday a shade below its level on Sept. 12. That's a sign that traders are feeling more confident in the financial system.
• After a dramatic post-Lehman fall, the 10-year US Treasury note has rebounded and earlier this month topped the Sept. 12 level. Investors, who had bought the notes last fall as a safe haven from the panic, have apparently regained their appetite for risk.
• Shares of Morgan Stanley closed at $28.51 Tuesday, not quite the $37.23 they stood at last Sept. 12 but a good deal above the $9.20 lot they hit in November. Shares of Goldman Sachs, JPMorgan Chase, and other financial stocks have seen similar rebounds.
"The financial environment has improved dramatically," said Nariman Behravesh, chief economist of IHS/Global Insight, in a conference call with clients Tuesday. Meanwhile, "the real [economy] is beginning to mend."
It's tempting to speculate about how much less the economy would have stumbled without the extra momentum of the Lehman-induced panic. Would the loss of 345,000 jobs in May seem a lot worse had the US not experienced six straight months of 500,000-plus losses? Would consumer expectations – reported Tuesday by the Conference Board – be above their level last September had Americans not felt on the verge of falling off a cliff earlier this year?
The point, however, is that it all depends on your point of view. Americans' sense of where the economy is is framed by the economic plunge during the past nine months. From that perspective, just about anything short of disaster looks good.
So a weak recovery, which many economists are now forecasting, seems like progress, even though housing prices continue to fall, unemployment continues to rise, and the federal government is running up a huge tab in stimulus spending, which will have to be paid some day. It will take some time before the weak recovery gives way to something more robust.
Months ago, economist Nouriel Roubini predicted just this. Back then, he was labeled Dr. Doom.
Now, it seems, doom is the new up.
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