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A False Sense of Security?

Europe made progress in the beginning of September, but with stock valuations looking full and the global economy on edge, pullbacks are still possible.

Jeremy Glaser 24.09.2012

Stocks reclaimed plenty of multi-year highs in the beginning of September. The Nasdaq touched levels not seen since 2000, and the Dow got back to its pre-crisis December 2007 high. The market seemed to be cheering progress in Europe and mostly shrugging off disappointing U.S. jobs data.

The cheers were not totally unfounded. Europe did make a substantive step forward, and the jobs data--although disappointing--was hardly a disaster. But the world economy is far from out of the woods, and given how much stocks have run up, and how full valuations have become, investors must continue to exercise caution and should be prepared for a potential pullback.

Europe Ends Its Vacation
Europe made a real effort to bring its debt crisis under control in the beginning of September. After promising to act last month, we finally got the concrete details of the European Central Bank's plans to keep short-term borrowing rates reasonable for some beleaguered eurozone members. And the details mostly lived up to expectations. Unlike previous plans that seemed to be filled with hidden landmines, the new outright monetary transaction plan looks like it can achieve its goals. The rub is that the goals of this plan are modest compared with the size of the eurozone crisis.

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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