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Back to square one

Money | Stock prices at the final bell on June 30 masked a volatile quarter

Issue: "Orphaned no more," July 30, 2011

The U.S. stock market ended a tumultuous second quarter roughly back where it began. When the final bell sounded June 30, the Dow Jones industrial average was up 0.8 percent for the April-June period, while the S&P 500 index of large company stocks was down a mere 0.4 percent. The minor moves masked the quarter's volatility, which included a fear-inducing decline that continued for six straight weeks. But in the waning days of the three-month period, both the Dow industrials and the S&P 500 enjoyed their biggest weekly gains in two years, lifting the market back to its starting point.

The six-month tallies for 2011 showed a 7.2 percent increase for the Dow and a 5 percent gain for the S&P 500. While stocks rose as the quarter closed, the yield on two-year Treasury bonds touched a record low of 0.33 percent before rebounding slightly. The minuscule yields suggest that many investors are still seeking safety in government bonds, rather than putting their money at risk elsewhere.

Give it back

Employing its expanded authority under the 2010 Dodd-Frank financial-regulation overhaul bill, the board of the Federal Deposit Insurance Corporation approved a rule that will allow the FDIC to seize up to two years of pay from senior executives and directors of failed financial institutions. The money will be recovered if an executive or director failed to conduct his or her responsibilities "with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances."

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The "clawback" authorization is part of a broader rule that sets the framework for FDIC liquidation of failed institutions, including certain "nonbanks" that play a major role in the U.S. financial system. The collapse of Lehman Brothers Holdings-which was not a bank under U.S. law and therefore not subject to FDIC intervention and liquidation-helped spark the 2008 financial crisis.

Not working

America's unemployment rate ticked up to 9.2 percent in June-from May's 9.1 percent-as private companies added only 54,000 workers to their payrolls. Financially distressed state and local governments, meanwhile, continued to jettison jobs, resulting in a net June job gain of only 18,000. (Experts say the economy needs 100,000-125,000 new jobs each month to keep pace with population growth.) More than 14 million people were out of work at mid-year, including 6.3 million who have been without work for six months or more. Since March, the ranks of the unemployed have increased by more than half a million.

-Joseph Slife is the assistant editor of SoundMindInvesting.com

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