The Standard Poor’s 500-stock index, the main gauge of broad market performance, closed on Friday at 1,257.60, finishing the year nearly dead even with its 2010 close of 1,257.64, which is technically down 0.003 percent. The Dow Jones industrial average of 30 blue-chip American stocks fared better, closing the year with a 5.5 percent gain at 12,217.56.
Market strategists predict the S. P. will stay in a range of 1,100 to 1,500 by the end of 2012, depending on how investors balance economic growth, fiscal policy, corporate earnings and the European debt crisis, as well as the potential for change after the November election.
Yet, looking back at 2011, it was a flat finale that told little of the volatility preceding it, when political turmoil, financial upheaval and even natural disasters left almost no corner of the markets untouched.
On 35 trading days in the year, the broader market closed with a gain or loss of 2 percent or more — the most number of days of that magnitude since the financial crisis of 2008-9 and making 2011 among the most volatile on record for stocks.
“It has been such a difficult year,” said Rick Bensignor, the chief market strategist for Merlin Securities. “Things changed on a dime.”
Oil prices shot up to $114 a barrel before plunging to $76 and rising again to $100 in reaction to revolutions in the Middle East and North Africa. Investors piled into the perceived haven of United States Treasury bonds even after the nation’s credit rating suffered its first-ever downgrade. The earthquake and tsunami in Japan exacted a devastating human and economic toll.
And the debt crisis in Europe upended governments, stirred fears of sovereign defaults and imposed severe financing strains on banks. Possibilities that were once remote became questions for debate in 2011: Will the euro zone break up? Is this a replay of the 2008 financial crisis?
Sentiment was also hobbled by a deadlock in Washington over fiscal policy and by the potential for slowing growth in emerging markets.
“Investors are scared to death,” said Philip J. Orlando, a chief market strategist for Federated Investors. “You have a massive flight to safety.”
Despite the bruising it took in 2011, Wall Street managed to score one of the better global performances. Major European and Asian indexes lost anywhere from 6 percent (Britain) to 26 percent (Italy) for 2011.
Looking ahead, some analysts see the United States faring even better in 2012. Binky Chadha, the chief strategist for Deutsche Bank, who forecast that the S. P. 500 would end closer to 1,500 in 2012, wrote in a market commentary that “very healthy” corporate fundamentals and cheap valuations would help equities eventually win out over the euro crisis and American fiscal issues.
Some analysts said investors would most likely be better braced to handle policy changes in the nations that use the euro.
“Investor reaction should continue to get better,” said Jack A. Ablin, chief investment officer of Harris Private Bank. “For as lousy as Europe’s news is, it has got to be the slowest moving train wreck in the history of the financial world. It’s the stuff that comes over the transom that kills us.”
Among the best 2011 performers in the S. P. 500 were utilities, up 14.8 percent; health care, up 10.2 percent; and consumer staples, 10.5 percent. The financial sector fared the worst, finishing down 18.4 percent.
Macroeconomics ganged up on market sentiment this year to such an extent that investors backed off stocks even as American companies set records for profits, mostly via cost-cutting.
In the third quarter, for example, earnings per share for companies in the S. P. 500 were $25.29, their highest ever for a quarter, according to statistics compiled by Standard Poor’s. But in an “enormous disconnect,” said Howard Silverblatt, senior index analyst for S. P., the index was still down 14 percent in that period.
“The fundamental underpinnings of investing didn’t matter” in 2011, Mr. Ablin said. “All it took was one headline and just like a tidal wave, it was lapping across the market.”
Article source: http://feeds.nytimes.com/click.phdo?i=b91dbd1c7951a4a78d86c52c63940db1
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