How will Wall Street remember 2012?

 presented by Marc Aarons @ Money Managers Inc.

Stock market bears might characterize 2012 as a year of living dangerously, a year in which Wall Street coped with major risks to the American and European economies. Stock market bulls might end up remembering 2012 for what didn’t happen: Greece had resisted a temptation to exit the euro, and it looked as if bipartisan negotiation might save the U.S. economy from heading over the fiscal cliff. In late November, stocks appeared on track for some solid yearly gains.

Key economic indicators improved. The year saw major rebounds in the housing market and consumer confidence. By October, existing home sales were up 10.9% from a year ago with the median sale price at $178,600; 11.1% better than in October 2011. New home sales volume in October had increased 17.2% in 12 months, and the National Association of Home Builders builder sentiment index hit 46 in November, sharply above the October 2011 low of 17. The Conference Board’s consumer confidence poll hit a 57-month high of 73.7 in November, while the University of Michigan’s November consumer sentiment survey reached a peak unseen since July 2007 at 84.9.^1,2,3,4,5

By October, unemployment was at 7.9%, down 0.4% from January and 2.3% from three years before. After a 0.2% reversal in May and a flat reading in June, personal spending increased consistently through the third quarter, albeit with high summer gas prices exerting a bit of influence on the gains. This stronger consumer spending did seem to make a difference: our GDP was 1.9% in the first quarter, 1.3% in the second and according to the federal government’s first estimate, 2.7% in the third.^6,7,8

Interest rates remained at historic lows. By Thanksgiving, Freddie Mac had the interest rate for the 30-year FRM averaging 3.31%, and the latest Consumer Price Index showed a 1.7% yearly gain (meaning inflation was still within the Fed’s target range).^7,9

Health care reforms withstood a high court challenge. The Supreme Court upheld the Affordable Care Act of 2011 in a ruling that was not without controversy. The court’s majority opinion characterized the law’s requirement for Americans to buy health insurance in 2014 as a form of tax. As Chief Justice John Roberts wrote, “The federal government does not have the power to order people to buy health insurance. The federal government does have the power to impose a tax on those without health insurance.”¹⁰

Stocks advanced in the face of major headwinds. A disappointing fall earnings season weighed heavily on Wall Street in October and November, along with persistent anxiety over the fiscal cliff, the slated combination of tax hikes and spending cuts that economists warned could send America into a 2013 recession. Still, these fears and others (concerning China’s economic productivity, Spain and Italy’s bond yields and Greece’s financial peril) didn’t send stocks into negative territory during the first 11 months of the year.¹¹

In the first half of 2012, economists were wondering if the European Union might be headed for a breakup. While German chancellor Angela Merkel and French president Nicolas Sarkozy affirmed their support for the EU, detractors felt that the strongest eurozone economies were shouldering more than their fair burden in the prolonged, agonizing bailout effort. Prospects to keep the EU stable brightened when European Central Bank president Mario Draghi pledged to do “whatever it takes” to sustain the euro, with the ECB subsequently introducing an unlimited easing program paralleling our own QE3.¹⁵

As November wrapped up, the Dow had advanced more than 10% in 12 months and the NASDAQ had gained more than 16% year-over-year. The S&P 500 had also gained about 16% in the past 12 months. Its YTD total return was above 14% as of the close on November 28, with its consumer discretionary and financials sectors up more than 20% for the year. The health care sector was up almost 15% YTD while the info tech and telecom services sectors showed approximately 13% and 12% YTD gains. Utilities was the only industry group in the red, down more than 4% YTD after nearly 11 months of 2012 market activity.^11,12

Eyeing other global benchmarks toward the end of November, the solid 12-month gains outnumbered the 12-month losses. A November 28 snapshot revealed the following year-over year performance: Bovespa, +0.9%; Nikkei 225, +10.9%; Hang Seng, +20.1%; Sensex, +17.7%; Shanghai Composite, -18.6%; Australia All Ordinaries, +7.7%; CAC 40, +17.4%; DAX, +27.6%; FTSEurofirst 300, +18.0%; FTSE 100, 9.6%; MICEX (Russia), -4.4%.¹³

Commodities. 2012 has been a positive year for many commodity futures – and a superb year for a select few. According to data compiled by Reuters on November 28, wheat futures were +34.2% on the year, soybeans +20.7%, cocoa +18.9% and corn +17.6%; natural gas was up 23.7% YTD. Silver was up 20.7% YTD, platinum 14.6% and gold 9.6%. Copper and palladium had both advanced 2.6% for the year. The big YTD losers included oil (-12.4%), sugar (-17.5%) and coffee (-36.6%). The U.S. Dollar Index was virtually flat YTD after Thanksgiving (+0.1%).¹⁴

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

www.ocmoneymanagers.com

Citations.

1- www.realtor.org/news-releases/2012/10/existing-home-sales-rise-in-october-with-ongoing-price-and-equity-gains [11/22/12]

2 – www.latimes.com/business/la-fi-mo-new-home-sales-20121128,0,3039964.story [11/28/12]

3 – www.nytimes.com/2012/12/20/business/economy/existing-home-sales-climb.html [11/20/12]

4 – www.reuters.com/article/2012/11/27/us-usa-economy-instant-idUSBRE8AQ0SP20121127 [11/27/12]

5 – www.reuters.com/article/2012/11/09/us-usa-economy-sentiment-idUSBRE8A810Q20121109 [11/9/12]

6 – www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [11/2/12]

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is not possible to invest directly in an index. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world’s largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The Hang Seng Index is a freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei average is the most watched index of Asian stocks. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the Australian equities market. FTSEurofirst 300 Index includes the 300 largest companies ranked by market capitalization in the FTSE Developed Europe Index. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange.The MICEX Index is the real-time cap-weighted Russian composite index. It comprises the 30 most liquid stocks of Russia’s largest and most developed companies. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The US Dollar Index measures the performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and performance data is historical and not indicative of future results. All indices are unmanaged and are not illustrative of any particular investment. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

7 – articles.latimes.com/2012/oct/29/business/la-fi-mo-consumer-spending-personal-income-20121029 [10/29/12]

8 – www.esa.doc.gov/economic-indicators/economic-indicators-2/ [11/29/12]

9 – www.freddiemac.com/pmms/ [11/21/12]

10 – money.cnn.com/2012/06/28/pf/taxes/health_reform_new_taxes/index.htm [6/28/12]

11 – markets.on.nytimes.com/research/markets/overview/overview.asp [11/27/12]

12 – www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l– [11/28/12]

13 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [11/28/12]

14 – www.reuters.com/article/2012/11/28/markets-commodities-idUSL1E8MS5T20121128 [11/28/12]

15 – http://www.reuters.com/article/2012/09/25/us-ecb-draghi-plan-idUSBRE88O09A20120925 [9/25/12]