Confidence is the cornerstone that keeps our capital markets afloat, helping us maintain a vibrant financial system even as banks hemorrhage red ink and stock prices wither from the heat of the recession.
One only has to look as far as last September when the failure of Lehman Brothers caused a very small number of money market funds to post losses, which rattled confidence and nearly caused a full-blown panic to develop.
Today’s modest pullback in stocks following this weekend’s heavy coverage of the swine flu suggests that, at least for now, the possibility of a pandemic seems remote and noticeable damage to the economy is unlikely. Now I’m the first to realize that sentiment can get out of whack. Many of us are still smarting from the rampant pessimism that bogged the Street down in March and took the Dow Jones Industrials below the 6,600 mark.
The markets may not have a perfect track record when it comes to divining future events, but at this juncture, the collective wisdom of all investors - both novice and seasoned - signals that the latest worries will eventually fade. Stay tuned.
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