Posted on March 10, 2011 by David Laidlaw
Two years ago yesterday, the financial markets reached a nadir. The S&P 500 closed at 676 on March 9, 2009. Since then, the market has appreciated by 95% with the S&P 500 closing at 1320 yesterday.
The worst case scenarios that stock prices were discounting did not come to pass. With all of its flaws, TARP provided enough capital to the banks to prevent serial bank closures. The Federal Reserve’s emergency measures also provided enough stimulus to keep the credit markets functioning. Finally, businesses focused on productivity to drive profits in a slow growing economy throughout the recession and early recovery.
All of the problems from the financial crisis are not completely in the past. Employment is still anemic and governments throughout the world have not addressed their debt problems (see Spain’s credit rating downgrade today).
On anniversaries such as this, it is important to recognize how fortunate we were to avoid a total collapse. It also helps to understand how volatile markets are and the importance of not selling when panic overrides reason.