2011 – A Year in Review
Weekly Update – January 3, 2011
As we close the books on 2011, many will associate the year with Europe’s debt crisis, Congress’ political gridlock, and the stock market’s volatility. And to some extent, they’ll be right. We did face a number of significant challenges during the course of the year. At the same time though, 2011 was a year of growth and healing for the United States.
Americans are spending again, as evidenced by a record-breaking holiday shopping season.[1] Factories are producing more.[2] Companies are generating impressive profits.[3] The housing market is showing signs of life.[4] And with the unemployment rate at its lowest level in nearly three years[5], even the job market is improving. While blind optimism can be a dangerous thing, focusing on the negative can be equally risky. So without amplifying the problems of the past or minimizing the challenges of the future, let’s take a look back at some of the key events that made 2011 what it was.
Japan Quake Shakes Markets (March)
The devastating earthquake and consequent tsunamis that hit Japan in March riled global markets. The Japan earthquake sent the Nikkei Index on a downward spiral, and the U.S. stock market soon followed. The auto industry lost ground as Japanese manufactures were forced to halt production due to power outages.[6]
Budget Problems Almost Result in Shutdown (April)
Well into April, the 2011 budget had still not been approved by Congress. Instead, lawmakers passed six short-term spending bills through March. The final extension was set to expire on April 8th, forcing Congress to come to a budget agreement or face a shutdown. Had a shutdown occurred, Americans would have faced grievous consequences, and nervous investors felt the pressure.[7]
Osama Bin Laden’s Death Rallies Markets (May)
Following the death of Osama Bin Laden at the hands of U.S. forces in Abbottabad, the stock market opened significantly higher. President Obama called Bin Laden’s death “the most significant achievement to date in our nation’s effort to defeat al Qaeda.” The Dow Jones industrial average rose 56 points (0.5%), the S&P 500 climbed 5 points (0.4%), and the Nasdaq Composite gained 8 points (0.3%).[8]
U.S Government Risks Defaulting on Debt (July)
After the U.S. debt ceiling was reached in May, the government was forced to find a solution or risk default on August 2. Though congress had over 11 weeks to come to an agreement, things came down to the wire once again as lawmakers argued over solutions, leaving financial markets on edge.[9]
S&P Downgrades the United State’s Credit Rating (August)
In what was perhaps the most humiliating news of the year, Standard and Poor’s decided to downgrade the U.S. credit rating from AAA to AA+, which marked the first U.S. credit downgrade in history. This downgrade hit stock prices hard, and the long term consequences of S&P’s move are yet to be known.[10]
Occupy Movement Begins (September)
Activists began gathering in New York City’s Financial district on September 17th to protest social and economic inequality, high unemployment, greed, corruption, and the influence of corporations on government. The protests in New York City have sparked similar protests around the world. News surrounding this movement has been a regular feature of recent headlines.[11]
A Note About Equities
U.S. stocks slid on the final trading day of the year, with the S&P 500 surrendering its 2011 gain and settling virtually flat for the year at -0.04%. The Dow Jones industrial average ended the year up 5.5%, its second consecutive yearly rise, and the Nasdaq composite index finished down 1.8% for its first annual loss since 2008.[12] Despite disappointing equity returns in 2011, the last three months of the year were positive, which could bode well for 2012. The S&P 500 rose 11% in the fourth quarter, and the Dow climbed 12% for its largest quarterly point gain in its history. On the bright side, stocks seem to be well-priced. The S&P 500 is trading at 12 times its expected earnings per share versus a more typical 15 times. In other words, stocks appear cheaper than normal right now.[13]
In Conclusion
What is in store for 2012? The answer to that question will depend on who you ask, and where they’re looking. At the end of the day, no one has a crystal ball that can be relied upon, and we should not be so arrogant as to make predictions. The indicators we are watching offer both positive and negative signs and many questions remain to be answered. How will Europe sort out its debt troubles? Will U.S. lawmakers raise the debt ceiling again in 2012? Will they extend the Bush Era tax cuts? How will China’s slowing economy affect the world? The answers to these questions and more like them have the potential to affect financial markets.
All in all, 2012 is beginning on a more positive note than many investors could have predicted given the challenges of 2011. And while we hope the economy and the stock market maintains its positive momentum, history teaches us that ups and downs are part of life. Whatever we face in the year ahead, rest assured that we will maintain a watchful eye on any factors that have the potential to affect you. May a bright and prosperous 2012 be yours!
ECONOMIC CALENDAR:
Monday – New Year’s Day Observed
Tuesday – ISM Manufacturing Index, Construction Spending, FOMC Minutes
Wednesday – Motor Vehicle Sales, Factory Orders
Thursday – ADP Employment Report, Jobless Claims, ISM Non-Manufacturing Index, EIA Petroleum Status Report
Friday – Employment Situation
| Data as of 12/30/2011 |
1-Week |
1-Year |
5-Year |
10-Year |
| Standard & Poor’s 500 |
-0.61 |
-0.04 |
-2.27 |
0.83 |
| Dow |
-0.62 |
5.53 |
-0.39 |
2.05 |
| NASDAQ |
-0.52 |
-1.80 |
1.57 |
3.11 |
| MSCI EAFE |
0.04 |
-12.2 |
-4.63 |
2.03 |
10-year Treasury Note
(Yield Only) |
2.03 |
3.31 |
4.71 |
5.11 |
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized.
Sources: Yahoo! Finance, MSCI Barra. Past performance is no guarantee of future results.
Indices are unmanaged and cannot be invested into directly. NA means not available.
QUOTE OF THE WEEK:
“Be always at war with your vices, at peace with your neighbors, and let each new year find you a better person.” – Benjamin Franklin
RECIPE OF THE WEEK:
Fabulous Five-Minute Fudge
Source: Better Homes and Gardens
Ingredients:
1 12 ounce package semisweet chocolate pieces (2 cups)
2/3 cup sweetened condensed milk (½ of a 14 ounce can)
1 tablespoon water
3/4 cup chopped walnuts, toasted if desired
1 teaspoon vanilla
Directions:
1) Line a cookie sheet with waxed paper; set aside. In a medium microwave-safe bowl, combine chocolate pieces, sweetened condensed milk, and water.
2) Microwave, uncovered, on 100% power (high) for 1 minute; stir. Microwave about 1 minute more, or until chocolate is melted and mixture is smooth, stirring every 30 seconds. Stir in nuts and vanilla. Pour mixture onto prepared cookie sheet and spread it into a 9×6 inch rectangle, or drop mixture by rounded teaspoons onto prepared cookie sheet.
3) Chill fudge about 30 minutes or until firm. Cut fudge into 1 ½ inch squares. Makes 24 pieces
GOLF TIP OF THE WEEK:
Hit Under an Obstruction
If you need to keep your ball low, such as under tree limbs, but need distance to execute the shot, here’s a trick for your bag:
1) Play the ball slightly rear of center.
2) Use a 3, 4, or 5 iron, and close the club face slightly.
3) Keep your hands ahead of the club for the whole swing.
The ball will come out low and hot, so compensate with the amount of back swing you use. Sometimes the ball will draw a little more than usual, so practice this shot on the range before you take it on the course.
HEALTH TIP OF THE WEEK:
Eat More Fish
The evidence is strong that the oils in darker types of fish, such as salmon, tuna, mackerel, and herring, are beneficial for the heart and brain and may even lower risk of cancer. – Dr. JoAnn Manson, chief of the division of preventive medicine at Brigham and Women’s Hospital and professor of Medicine at Harvard Medical School[14]
GREEN TIP OF THE WEEK:
Kill Vampire Appliances
Many appliances use electricity even when they’re turned off. To combat this problem, unplug small appliances and electronics when you aren’t using them. Or, plug them into a power strip and turn the power strip off when you aren’t using those items. Simply unplugging a television, computer monitor and fax machine when you aren’t using them can save about $6 a month.[15]
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Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general.
The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.
The MSCI EAFE Index was created by Morgan Stanley Capital International (MSCI) that serves as a benchmark of the performance in major international equity markets as represented by 21 major MSCI indexes from Europe, Australia and Southeast Asia.
The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.
Google Finance is the source for any reference to the performance of an index between two specific periods.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
Past performance does not guarantee future results.
You cannot invest directly in an index.
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Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
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[1] http://www.icsc.org/apps/memberprint.php?datafile=rsrch/st/st20111228.pdf
[2] http://www.federalreserve.gov/releases/g17/current/
[3] http://www.bea.gov/newsreleases/national/gdp/2011/gdp2q11_3rd.htm
[4] http://blogs.wsj.com/economics/2011/12/20/housing-markets-foundation-looking-more-stable/
[5] http://www.google.com/hostednews/ap/article/ALeqM5hIM1IodHSzv8Lk-yrCbb0EOsH14Q?docId=5e30e69bef9844ec9cc75334d71fe361
[6] http://www.cnbc.com/id/42028804/Japan_Quake_s_Financial_Impact_Five_Things_to_Watch
[7] http://blogs.wsj.com/deals/2011/04/08/government-shutdown-what-does-it-mean-for-financial-markets/
[8] http://www.gobankingrates.com/2011-review-biggest-financial-news-year/
[9] http://www.huffingtonpost.com/2011/07/25/debt-ceiling-stock-market_n_908351.html
[10] http://www.cbsnews.com/stories/2011/08/05/national/main20088944.shtml
[11] http://en.wikipedia.org/wiki/Occupy_Wall_Street
[12] http://articles.chicagotribune.com/2011-12-31/business/ct-biz-1231-wall-20111231_1_stocks-end-consumer-staples-slight-gain
[13] http://finance.yahoo.com/news/many-ups-downs-stocks-end-222124730.html
[14] http://www.boston.com/lifestyle/food/gallery/healthtips?pg=5
[15] http://www.bankrate.com/brm/news/energy-environment-2007/tips_environmental_home_a1.asp
Equal Weight