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A False Sense of Security?

Europe made progress this week, but with stock valuations looking full and the global economy on edge, pullbacks are still possible.

Stocks reclaimed plenty of multi-year highs this week. 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 this week, 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.